A sizeable portion of the super industry is in “limp mode” and close to failing the prudential regulator’s annual performance test, which money managers fear is leading to less active risk-taking and lower investment returns.
Funds that underperform their net investment benchmark by 0.5 percentage points fail the performance test. Funds that fail must alert affected members and could be banned from accepting new customers if they fail the test two years in a row. “The ability of the industry to participate in [public-private partnerships] and nation-building style transactions is hampered if those deals aren’t necessarily part of the benchmarks,” one CIO said.
“We are trapped between meeting the stated demands of our members or risk being on the front page of the mainstream newspapers,” one ethical money manager said.Mr Bell said moves to minimise the likelihood of failing the performance test would lead to a reduction in expected active returns. “I have reduced my performance test tracking error – ergo my expected active returns are lower,” one said.