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The employer-employee split worked well when not-for-profit funds were in their infancy. Today, in an era of member choice and the growing demands of retiree members, it’s a model that fails to cut the mustard.
Morningstar is upping the ante on super fund research
Morningstar Australia is throwing down the gauntlet to rival rating houses after beefing up its superannuation ratings research team with plans to boost its coverage of the APRA-regulated funds.
“We’d ideally like to cover more than 80 per cent of the assets under management in the market. We’d like to, over time, cover all the large funds and some of the smaller ones. But if we cover between 15 to 20 funds that should cover a large proportion of the assets,” Morningstar director of manager research ratings Matt Olsen (pictured) says.
To implement this strategy, Morningstar has expanded its superannuation research team with the recent hiring of Thomas Dutka and William Anglingdarma who will work with Olsen, David Little and Shamir Popat in analysing superannuation funds.
In a crowded market of research houses offering superannuation fund ratings, Olsen says Morningstar’s Medallist Ratings’ focus on investment differentiated their analysis.
“We think we’ve got more depth in that investment process analysis. And Morningstar has got strengths in a range of areas such as our ability to collect data globally and compare different peer groups of like types of investments in the multi-asset space.”
Morningstar has covered some funds such as AustralianSuper and Cbus since 2015, while UniSuper was rated last year. It also has a Medallist Rating on the Australian Retirement Trust.
The ratings house has also revamped its ratings methodology, increasing the emphasis on governance in its Medallist Ratings from 10 per cent to 25 per cent. Investment gets a 50 per cent weighting, while people account for the other 25 per cent.
“We just see people as such an important part,” he says. “That whole member service offering, the quality of their product offerings, their organisational structure, and … if there are problems from a regulatory perspective, we want to make sure that anything that impacts it is up-weighted and of increased importance.”
The methodology changes dovetail nicely with the Australian Prudential Regulation Authority’s proposals for strengthening its prudential governance framework for banks, insurers and superannuation trustees.
Of these proposed changes the one that may have the most significance for superannuation trustees is the proposal to introduce a lifetime tenure limit of 10 years for non-executive directors at an APRA-regulated entity.
The first ratings under the new methodology are expected to come out by August after completion of fund meetings in the first half of the year. Olsen says the superannuation funds have been very receptive to the new methodology and increase in their coverage.
“The indications most funds have given us is that they’ll either participate this year or next year. So, from next year onwards, we’re going to see quite comprehensive coverage. We’ve already had enthusiastic response from the funds that we cover already. And we’ve had some strong inquiries from some of the other big funds as well,” he says.
It covered a range of issues including the rise of the Megafunds, governance matters, and transparency in listed assets. It also highlighted some issues emerging with the larger funds such as investment process challenges.
The increase in ratings coverage is further evidence of Morningstar’s focus on the superannuation sector. Last year the research house released it inaugural Superannuation Fund Landscape Report that delved into the state of the industry.
Olsen says that more than 6,300 financial advisers consume its research and the increased focus on superannuation funds will allow them to compare all types of superannuation offerings for their clients.
“We’re comparing them on an even playing field against some of the retail super funds. So, we’ll compare all those different offerings, which will enable advisers to compare strengths and weaknesses and be able to choose for their clients what they really think is their best offering.”
