Credit:<\/span>Louie Douvis<\/cite><\/p>\nOn Wednesday, the financial regulator released the results of its annual testing of 69 no-frills MySuper products, which account for a total of 13.7 million superannuation accounts. It named five super funds that failed the annual performance tests. As a result, four of these funds are no longer allowed to accept new members.<\/p>\n
Power said passing the test this year was a significant moment for the wealth manager, which oversees $139 billion in funds under management.<\/p>\n
\u201cIt\u2019s an important milestone for us,\u201d she said. \u201cWe have put significant work over the last 12 months into ensuring that we passed the test.<\/p>\n
\u201cOur focus now is on growing, it\u2019s on moving forward … This is a very big year for us.\u201d<\/p>\n
After failing the test last year, Colonial First State appointed global investment manager BlackRock to work with their investment team to advise them on the MySuper portfolios and to \u201cquickly align\u201d them with the performance test.<\/p>\n
\u201cBlackRock\u2019s appointment was to work with our investments team, to advise our investment team relating to the MySuper portfolios … which are about 10 per cent of our overall funds under administration,\u201d Power said on Thursday.<\/p>\n
\u201cBlackRock\u2019s role in that is to come up with recommendations, to assess the portfolios, and to support our investments team in implementing changes to the portfolios.<\/p>\n
\u201cThat relationship is an enduring relationship. It wasn\u2019t just about passing this year\u2019s test. It\u2019s about supporting us ongoing in an advisory capacity.\u201d<\/p>\n
Under a policy introduced to improve member returns, MySuper funds are assessed for performance by the Australian Prudential Regulation Authority each year.<\/p>\n
The threat of closure if a fund fails the test two years in a row has already sparked a series of mergers, and most of the poorest-performing funds have announced merger plans.<\/p>\n
KPMG partner Platon Chris said the performance test had been a driving factor in the consolidation of super funds.<\/p>\n
\u201cThe increased spotlight on funds\u2019 performance has also motivated Australians to choose their own default super fund arrangements, which has led them to selecting a fund of high investment performance and low-fee arrangements, which is ultimately a positive outcome,\u201d he said.<\/p>\n
However, he said they still had concerns that trustees of underperforming super funds will have limited options to exit the system, \u201cin particular for those funds that have failed the APRA performance test for a second time and are currently in merger discussions\u201d.<\/p>\n
\u201cThe implications of being closed to new members will need to be assessed by both merger partners to determine if there is any potential negative impact to the merger and if the business case still stacks up to support the transaction,\u201d he said.<\/p>\n
\u201cThe key to these mergers progressing will be the ability for the merger to be completed in a timely manner, soon after the underperforming funds are required to write to members regarding their outcome.\u201d<\/p>\n
Colonial was owned for two decades by the Commonwealth Bank of Australia before US private equity giant KKR bought 55 per cent of the business last year. CBA retains the remaining 45 per cent.<\/p>\n
The deal came amid a wave of consolidation in wealth management as banks retreated from the sector, and followed criticism of Colonial by the Hayne royal commission while it was owned by CBA.<\/p>\n
At the end of last year, the Federal Court ordered the company to pay a civil penalty of $20 million after it found Colonial had engaged in misleading and deceptive conduct when communicating with super members by trying to keep them in high-fee products. In June, Colonial settled a class action from 100,000 superannuation fund members, agreeing to $56.3 million.<\/p>\n
\u201cWe\u2019re committed to acting in the best interest of our members,\u201d Power said on Thursday. \u201cAnd, for us, settling this was about moving forward. We passed the performance test, [and are] settling these class actions so that we can focus on growing the business, we can focus on moving the business forward.\u201d<\/p>\n
Power said the company had $430 million earmarked for upgrades to outdated technology systems, with the aim to lower costs for members.<\/p>\n
The company has been holding briefings for hundreds of members across the country this week, as it spruiks the development of a new wealth management platform and a reduction in fees.<\/p>\n
On Wednesday, The Age<\/em> and The Sydney Morning Herald<\/em> reported that Colonial First State was one of a handful of Australia superannuation funds being urged to review their partnerships with investment manager Federated Hermes, which is facing a backlash for sponsoring a Republican-aligned, climate-change sceptic foundation in the US.<\/p>\nPower said they took ESG investment risks seriously, and it was an important area of focus.<\/p>\n
\u201cWe\u2019re having discussions with the EOS [at Federated Hermes] team at very senior levels over the course of the next week, and we\u2019ll be making some decisions and determinations coming out of those conversations,\u201d she said. <\/p>\n
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion.<\/i><\/b> Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\nMost Viewed in Money<\/h2>\nFrom our partners<\/h3>\n
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