Form D watch: Australian Super Funds and the MySuper Performance Test targets Not applicable for fundraising

Market Context

The headline highlights a key challenge facing Australia’s $2.5 trillion superannuation system – the MySuper performance test administered by the Australian Prudential Regulation Authority (APRA). This test, introduced in 2021, evaluates default MySuper products based on their 8-year investment performance, with funds failing twice consecutively barred from accepting new members.

Strategic Implications

While the test aims to protect members from underperforming funds, its rigid structure has been criticized for driving short-term investment decisions and discouraging allocations to long-term sustainable assets critical for the environmental, social, and governance (ESG) agenda. This tension between performance and sustainability is a growing concern for the industry.

PE Angle

The MySuper performance test’s focus on listed assets and short-term returns creates a potential barrier for private equity and other illiquid, sustainable investments. Funds with significant unlisted holdings may be penalized, as seen with the 2021 failure of Commonwealth Bank Group Super partly due to its unlisted asset exposure.

Key Takeaways

• The MySuper performance test, while designed to protect member interests, is driving short-term investment decisions and hindering sustainable investing in Australia’s superannuation system.
• The test’s emphasis on listed assets and 8-year rolling returns creates a challenge for funds with significant unlisted, long-term sustainable investments.
• Industry leaders have called for the test to be expanded to include all fees and apply to all products, as well as to incorporate a more holistic assessment of long-term performance and sustainability.

Sources

• ESG Investor