Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
ASIC dumps super ‘insider trading’ probe
ASIC’s investigation into whether super funds took advantage of inside knowledge when switching investments in early 2020 has ended with the regulator taking no action.
The drawn-out saga of ASIC’s investigation into alleged “insider trading” at super funds has come to a close, with the corporate regulator saying it will take no further action against a number of staff who made switches during the market volatility of early 2020.
“ASIC has also completed our review of a range of transactions during the 2020 calendar year by directors, senior executives or their related parties,” ASIC said in a release. “These transactions involved the switching of investment settings, changes to investment contribution allocations and superannuation contributions, and the withdrawal and roll in of superannuation monies.”
“Based on the evidence obtained during our surveillance, ASIC is satisfied no further action is warranted against any individuals in relation to the identified transactions.”
The allegations were first made by Liberal MP Tim Wilson, then chair of the standing committee on economics, and focused on switches out of options heavily exposed to unlisted assets in the period before they were revalued, with the implication that those who made switches had advance knowledge of how steep the revaluations would be.
“Earlier in (2020) there was a bottoming-out of the Australian stock exchange as a consequence of COVID-19, then there was a delayed period where in many cases super funds had unlisted assets for revaluation and that it enabled people to move money from within funds based on knowledge or inside information to potentially profit,” Wilson said in October 2020. “This seems to me to be quasi-insider trading.”
ASIC ultimately launched an investigation into the matter, finding “conduct that fell below (its) expectations” with super funds failing to institute “robust conflict of interest policies that dealt adequately with investment switching”. The substance of the main claim was not proven. ASIC chairman Joe Longo also disputed the characterisation of the activity as insider trading, saying it had more to do with director duties and how funds create confidence for members that “trustees are not abusing their positions and are not using information inappropriately.”
“What’s really going on here is a concern that ASIC had and that we’ve been working on. We see it more as a governance issue – managing conflicts around certain individuals having access to the information and then those conflicts not being properly managed when they switch investments within their fund,” Longo said in response to questions from senator Andrew Bragg in February 2022.
“There is a whole range of considerations, when that switching occurs, that go to whether it is objectionable… But I think it’s important to say that it is not insider trading; it is a question of the management of conflict.
The accusations divided the super industry, with some viewing them as clear-cut examples of insider trading and others questioning whether it amounted to anything other than an attempt to time the market that any layperson with an understanding of how unlisted assets were valued could have made as well (ironically, many unlisted assets were ultimately not revalued as low as those in the public markets went).
