Since its implementation, the performance test has successfully driven chronic underperformers out of the system, according to the prudential regulator. However, it also led to unintended adverse outcomes, such as increased "herding" behaviour among funds, whereby portfolios become homogenised, thus stifling competition and potentially decreasing the market's overall dynamism. These systemic risks were highlighted in a recent special report, coinciding with the government's review.
Financial Services Minister Daniel Mulino joined the conversation at the Retirement Leaders Summit in Canberra, acknowledging potential issues related to index-focused investing strategies. While passive, rules-based investing remains a valid approach, many argue that investment officers at super funds should retain the freedom to choose investment strategies without excessive regulatory constraints.
The current system has inadvertently edged Australian funds out of lucrative global investment opportunities, threatening the previously robust competitiveness of the nation's retirement savings. Conexus Financial, through public engagements by its founder Colin Tate AM, has persistently advocated for less restrictive performance testing, as part of broader calls for financial sector deregulation.
Opponents of amending the test, including critics from major publications and consumer advocacy groups, warn against changes that may compromise funds' fiduciary responsibilities. Some fear that allowing deviation from indexed strategies could lead to funds being used to further governmental ESG ambitions, blurring the line between fiduciary duty and political objectives.
There is a belief that inflexible performance benchmarks hinder funds' effective capital allocation, both strategically in investment portfolios and operationally. Despite dissenting opinions, the overall consensus remains that the current regulatory framework may be overly stringent, hindering funds' ability to adapt and innovate.
It remains critical for super funds to be held accountable to their fiduciary duties while simultaneously being allowed sufficient latitude to choose investment routes that serve their members best. Ultimately, this balance is necessary to ensure the superannuation system fulfils its role effectively without succumbing to political pressures or inappropriate regulatory burdens.
The upcoming governmental review and potential amendments to the performance test will likely shape the future of Australia's superannuation landscape, impacting how funds can navigate the balance between regulatory compliance and investment flexibility.
