Ethics & Governance
Portfolio holdings disclosure
BY ,  |  

After many years of deferrals, the first reporting date for superannuation funds to disclose their portfolio holdings is fast approaching, with trustees being required to disclose item-by-item investment holdings (as at 31 December 2019) by late March 2020. We take a closer look at the requirements of the revised disclosure obligations, and the work that superannuation trustees will need to undertake before the end of the year in order to comply.

Background

As those in the superannuation industry will be aware, the revised version of the obligations that require superannuation trustees to disclose portfolio holdings were introduced into the Corporations Act 2001 as part of the 'member outcomes' legislation that came into effect in April 2019.

Believe it or not, the original portfolio holdings provisions were first introduced way back in 2012, but never came into effect, due to a series of deferrals by ASIC in response to industry concerns. In particular, the provisions had caused serious (and justified) consternation in the superannuation industry, due to the complicated 'look through' nature of the requirements. These would have required superannuation trustees to disclose indirect investment holdings all the way down to the underlying asset level for each entity in which the superannuation fund is invested (including through third-party fund products).

This would have necessitated superannuation trustees undertaking a potentially onerous task of negotiating disclosure rights at the portfolio level for investment vehicles, generating concerns that superannuation investors would be refused entry to some alternative investments, such as private equity and hedge funds, where portfolio company and valuation information is typically considered by fund managers to be commercially sensitive.

Disclosure under the new regime

Under the revised regime, all superannuation entities (called 'reporting entities') are required to disclose publicly on their websites the following information about each investment option (ie. on an investment-option-by-investment-option basis):

  • Sufficient information to identify each investment item (called a 'disclosable item') allocated to the investment option that:
    • Is held by the reporting entity, an associated entity of the reporting entity or a pooled superannuation trust; and
    • Is neither an investment in an associated entity of the reporting entity, nor an investment in a pooled superannuation trust;
  • Sufficient information to identify the value, and the weighting or exposure, of each disclosable item; and
  • The total value, and the weighting or exposure, of all disclosable items.
When the information must be disclosed

The above information must be published on websites twice each year within 90 days of 30 June and 31 December (based on portfolio holdings as at the end of the day on each of those dates). As mentioned, the first reporting day is 31 December 2019. Accordingly, portfolio holdings as at that date will need to be disclosed by late March 2020.

Scope of disclosure: which investments are 'disclosable items'?

The revised requirements seek to strike an appropriate balance, by requiring disclosure of asset holdings of third-party investment vehicles only where the third party is an 'associated entity' of the superannuation fund. This means that:

  • Investments held directly by superannuation funds (ie. where there is no third party) should be disclosed (eg. direct investments in listed securities, unlisted assets, derivatives etc); and
  • For indirect investments held through third-party entities, only the investment in the first 'non-associated' entity of the superannuation fund should be disclosed (and not subsequent entities in the holdings structure).
As such, a key question for superannuation trustees in looking at the investment structures will be whether the entities in which they hold interests are 'non-associated'.

While the tests under the Corporations Act are more involved that this, in most cases an entity will be an associate under the Act if the superannuation fund:

  • Controls the entity; or
  • Has significant influence over the entity in circumstances where the investment in the entity is material to the superannuation fund.

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