The big challenge for the superannuation industry as it greets the latest “mega trend” of transparency is whether to go down the voluntary or compulsory route, Benjie Fraser, a London-based managing director of JP Morgan, will tell the annual CMSF Conference this week.
Fraser, a governance expert who has worked with and studied Europe’s largest pension funds, says greater transparency is linked to attitudes on the broader scope of ESG and SRI policies. In that regard, the European funds, such as Norway’s Norges Bank, which has had a specialist SRI unit for more than 15 years, have led the way.
In Europe, including the UK, codes about ESG and transparency which have been developed are voluntary. In Australia, many funds have signed up to the UNPRI’s principles, although adapting investment procedures to fit has not been uniform across them.
With APRA’s slate of new regulations and increased watchfulness of funds, it would not be difficult to imagine Australia taking the route of greater compulsion.
Fraser, who will also address the IO&C Conference in Shanghai in late April, says the reaction by US funds to the tragic shootings which have occurred, where several high-profile funds have banned investment in arms manufacturers, provide an example of increased activism on the front.
“There will be more activism on transparency,” he says. “The awareness of asset owners is growing. There is now more data and better access to it to assist assessment.”
There are also philosophical questions, using arms manufacture as an example. For instance, should a fund also ban investment in the suppliers to arms manufacturers? This debate is only just starting, Fraser says.
Also, can increased disclosure prompt fund members to switch funds, perhaps at a bad time after a sharp drop in markets?
“Greater disclosure needs to be accompanied by greater education and member engagement,” he says.
To date, the focus on transparency has been around stock exposures, performance numbers and fees, with fees being the “flashpoint”. But there are no limits.
“Technology is changing the way we operate, giving members the access to tools to have a look in detail at their accounts. The individual can look at the micro level and respond to it.”
He points out that this provides a lot of opportunity for the big custodians, such as JP Morgan, which are spending a lot of time and money improving the depth and breadth of data and the functionality surrounding it.
“A few years ago, custodians spent a lot of money on infrastructure for the backoffice. Now, they’ve moved to the front end. It’s not just at the operational level either – it’s also at a managerial level”.