Adjust the benchmarks for faith-based funds: ASFA
While the Treasury consultation suggests applying a supplementary test to faith-based products that have failed the performance test, ASFA (headed up by Martin Fahy, photo at top) believes this would create the perception that they had been granted “special treatment” and that the main test should instead be overhauled to account for it.
ASFA says this approach was likely adopted in order to minimize work for APRA, but that accepting the premise of benchmarking in the first place suggests that there should be only one “appropriately constructed benchmark against which any such assessment is made.”
“If a product has made a “values-based” or “principles-based” decision not to invest in one or more assets then it is not appropriate to assess that product against a benchmark that includes the performance of those assets,” ASFA said in its submission to the consultation. “Instead, the benchmark should be adjusted by removing those assets and the product assessed against the adjusted benchmark.”
“By way of example, if a product has decided not to invest in tobacco products, or armaments, or gambling, because of the deleterious effect on public and individual health, the relevant benchmark(s) should be adjusted by removing the performance of those products from that benchmark.”
ASFA agrees with the proposition that trustees should be required to apply to APRA with respect to their product status in order to have their performance test adjusted, but suggests that the scope of Treasury’s review into the treatment of faith-based funds should be broadened to include all “values-based” products that impose limitations on investing in certain assets.
The performance test could then be adjusted for the product based on the trustee certifying that it employs a “‘values-based’, or “principles-based” investment strategy, that is disclosed to its members in its regulated disclosures and marketing materials, and has, as a question of fact, employed particular filters/screens.”