Super funds’ $54b shortfall in PE, VC costing retirees $20k
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The news: Around $54 billion that could be invested in startups and growth companies by superannuation funds is being held back by regulatory barriers, costing retirees $20,300, according to a report by Mandala commissioned by the Australian Investment Council (AIC).
The numbers: The report said investing in startups and growth companies through private equity and venture capital funds delivered average post-fee returns of around 18.2% — about 11 percentage points higher than listed assets in Australia.
However, super funds allocated an average of just 4.4% to these asset classes in default MySuper products due to regulatory requirements.
The report also estimated that an additional $54 billion invested in this area could create a further 140,000 jobs.
The context: The report identified the fee disclosure requirements of the Australian Securities and Investments Commission’s (ASIC) Regulatory Guide 97 (RG97) and the Australian Prudential Regulation Authority’s (APRA) Your Future, Your Super (YFYS) performance test as key barriers to investment.
It said funds were more likely to fail the YFYS performance test even when achieving better returns by allocating more to private equity and venture capital, because the test measures how closely returns track an asset benchmark rather than risk-adjusted performance.
The report argued the performance test and transparency framework are overly focused on implementation efficiency and investment fees, at the expense of higher returns.
Mandala recommended replacing the YFYS performance test with a metric that focuses on returns. It also proposed updating RG97 to require a return-on-fee metric to be published in product disclosure and periodic statements, to prioritise net returns, and to provide clearer information on investment fees.
What they said: AIC chief executive Navleen Prasad said: “We need to move the system away from a cheapest is best framework to one that delivers more money into workers’ pockets when they retire”.
“At the same time, the potential is there to grow the pool of capital available for Australian start-ups and growth companies by $54 billion and support an additional 140,000 Australian jobs.
“It’s rare to have such a high-impact opportunity to improve retirement outcomes at no cost to the employers, employees, or Government. Addressing the regulatory barnacles that are short-changing Australian workers should be a no-brainer.”
The source: Mandala Private capital: Australia’s untapped opportunity report
