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.
More useless info from APRA: someone should tell them…
Comment by Greg Bright
It was controversial when APRA announced a few years back that it would be publishing its own performance tables for super funds, using collected data dating back to 2004. Commercial researchers who had been doing this for a while – Rainmaker, SuperRatings and ChantWest – were concerned. They needn’t have been.
The main criticism at the time was, expectedly, that the APRA numbers would be a year or so out of date by the time of publication. This turned out to be an exaggeration. APRA has performed fairly well with its timeliness.
However, the lack of comparability between funds’ performance numbers was surprising. It is difficult to fathom the use of the figures as published.
The problem is that the APRA data is presented in such a way that it is almost impossible to compare the relative performance of the 200 big super funds which are surveyed. The centerpiece of the performance numbers is “fund-level rates of return” which aggregates all of the investment options. In the past six years, of course, the fund with the most cash – or the members who chose the most cash – is a winner. It’s not very sophisticated and it’s certainly not at all meaningful.
Here’s the link to the APRA website page with the various tables. If anyone can explain the value of any of this to us, I am happy to apologise to APRA:
http://www.apra.gov.au/Super/Publications/Pages/superannuation-fund-level-publications.aspx
You might think ‘why should anyone care?’. There are lots of questionable and ill-conceived or incomparable data packets floating around the superannuation industry. But APRA is the Government. And, super funds – i.e. super fund members – pay a levy to APRA for this sort of stuff.
And then there’s the daily press. Luckily, Sally Patten, a Fairfax journalist reporting in the Australian Financial Review and Sydney Morning Herald, recognized the issue this time. She wrote last week: “Overall, industry, corporate and public sector funds dominated the top of the APRA league table, which is controversial because it takes into account the whole of a super fund’s performance, rather than comparing individual investment options. As a result, super funds with a high proportion of older members, whose savings are invested in cash and other defensive asset classes, are likely to show relatively poor returns. The APRA figures show a wide disparity in the performance of the biggest funds.”
Other newspapers, however, glibly reported the results whereby the Goldman Sachs JB Were staff fund and the Commonwealth Bank staff fund, over the past 10 years, returned more than the others in which the public can actually invest. This is not to criticize the performance of those two quality corporate funds. It is just that the reported figures are incomparable.
The millions of members of the big funds, such as REST and AustralianSuper, will hopefully look at their statements and trust those rather than the confusing reports of the APRA figures.
Last week ASIC announced that it had ‘fined’ Media Super $10,200 for misleading promotional material, produced last year, comparing SMSFs’ performance with that of the industry fund. In this instance, Media Super got swept away with the averages and, rather more concerning, understated its own fees. It went a little too far for the other regulator’s liking.
Graeme Colley, of SPAA, the SMSF association, had the good sense to say the main problem was that Media Super compared apples with oranges – a common mistake.
Indeed, perhaps ASIC can advise its sister regulator on the subject.
