Chief executives of top superannuation funds have acknowledged that they can learn from asset managers when it comes to establishing more efficient in-house investment management practices, as many funds continue their internalisation journey.
However, they said when investment talent comes from fund management to a super fund’s in-house team, they must deal with big risk culture differences, and making sure they are aligned to the new “member-centric” environment is crucial.
These comments were made across two Superannuation CEO Roundtables jointly hosted by APRA and ASIC in June and July, attended by heads of the nation’s biggest retail and industry super funds including Paul Schroder (AustralianSuper), Scott Hartley (Insignia Financial) and David Anderson (Australian Retirement Trust).
The CEOs agreed that an investment talent’s “transition from profit-focused funds management to member-centric superannuation can be culturally confronting”, according to notes from the roundtables published by APRA.
“Each fund must adopt an individualised approach to internalisation, which balances the key person risk, cost, and timeframes associated with establishing and maintaining internal investment functions against the members’ best interest,” the notes read.
“Opportunities to learn from investment managers in structuring and operating their business were identified (e.g. implementing technical standards). Benchmarking fund practices against good external practices was discussed.”
Notes of the meetings were released after APRA listed investment governance supervision as a strategic priority for the super industry in its 2024-25 corporate plan published last week. As a part of the priority, the regulator said it will finalise thematic works in the next 12 months on unlisted assets, liquidity stress preparedness and investment internalisation.
Asset owners are well aware of the risks that poor investment practices can bring, as some believe its return penalty could be as great as 1 per cent per annum, according to research.
The CEOs said super funds have made some collective progress on their investment governance through “segregation of duties, enhancing delegations, and ensuring they have the right technical expertise and leadership skills to support strong Line One risk management”.
Seemingly in a pushback to the regulators on the contested unlisted asset valuation issue, the CEOs have asked APRA and ASIC to give more guidance on what they believe is a “a more consistent approach to private market valuations” and how the funds can get there.
The regulators’ focus so far has been on promoting more frequent valuation, but funds like AustralianSuper and Cbus have previously indicated that the problem lies in the complexity and the cost of this approach.
APRA deputy chair Margaret Cole said earlier this year that since the regulator is “principle-based”, the task of coming up with a fit-for-purpose valuation framework is funds’ responsibility.
Meanwhile, ASIC said its primary focus is understanding and super funds participate in public and private markets, and ” meet market integrity obligations”. ASIC chair Joe Longo signalled in July that it will set up a dedicated unit to engage with private markets at a Bloomberg event in Sydney.
“Trustees using external fund managers need to ensure they are holding their providers to account, and clearly understand what information is held and who acts on their behalf while maintaining robust controls,” the notes read.
“APRA and ASIC urged the CEOs to reflect on what the regulators have noted, and to apply superannuation and other industry learnings to their own operations.”
