APRA and ASIC host Superannuation CEO Roundtables – June and July 2024

APRA and ASIC held Superannuation CEO Roundtables on Tuesday, 18 June and Tuesday, 16 July 2024. The theme of these discussions was superannuation funds as investors of members’ money.

Hosted by APRA and ASIC, the Roundtables were attended by 12 superannuation Chief Executive Officers (CEOs) representing a broad cross-‑section of the industry across two separate roundtables (see Appendix I for the full list of attendees).

Investments 

APRA and ASIC agree that investment governance is an area of ongoing importance for superannuation industry attention. Since the enhanced SPS 530 Investment Governance (SPS 530) became effective on 1 January 2023, and SPG 530 Investment Governance (SPG 530) on 20 July 2023, APRA has undertaken thematic work on investment governance including comprehensive deep dives into liquidity, exploring the interactions between superannuation and other industries, and the internalisation of investment management in superannuation funds.

ASIC is looking at superannuation funds as participants in financial markets to understand how they interact with the market and meet market integrity obligations. This forms part of ASIC’s more general focus on integrity across public and private markets as dynamics continue to evolve.

The CEOs noted that superannuation funds have been on a journey to uplift investment governance and develop a mature industry with a strong risk focus. Regulatory reforms such as the Performance Test and mandatory ESG and climate reporting are viewed as tools that assist funds in integrating investment risk into their investment strategy and driving improved member outcomes through performance. Funds have focused on uplifting their controls though segregation of duties, enhancing delegations, and ensuring they have the right technical expertise and leadership skills to support strong Line One risk management. They acknowledged the value of APRA’s work to develop clear links between prudential standards and encourage further work in this space.

The CEOs agreed on the importance of a robust risk culture for funds looking to insource their investment functions, given an asset manager’s transition from profit-focused funds management to member-centric superannuation can be culturally confronting. Each fund must adopt an individualised approach to internalisation, which balances the key person risk, cost, and timeframes associated with establishing and maintaining internal investment functions against the members’ best interest. Opportunities to learn from investment managers in structuring and operating their business were identified (e.g. implementing technical standards). Benchmarking fund practices against good external practices was discussed.

COVID-19 early releases have highlighted the need for a focus on liquidity risk. The CEOs discussed how liquidity stress testing needs to be more substantive, with consideration for extreme scenarios. Historically, some funds have used their MySuper portfolio to manage liquidity.  Discussion points included the potential impact of that practise on MySuper returns and the need for careful management of member equity under SPS 530. The CEOs stressed it is important for funds to understand the relationship between public and private assets, as well as how changes in valuations of one asset can have a significant impact on the overall balance of asset allocations and the funds liquidity levels. They asked APRA and ASIC to consider what work they can undertake to assist the industry in ensuring there is a more consistent approach to private market valuations.

The CEOs agreed that as investment opportunities in private markets continue to open, it is essential that funds have prudent valuation practices and investment governance. ASIC reminded trustees investing in private markets to be mindful of their conduct obligations and to foster market integrity. It was noted that private markets are not naturally as transparent as public markets and trustees need to be focused on providing transparency. Trustees using external fund managers need to ensure they are holding their providers to account, and clearly understand what information is held and who acts on their behalf while maintaining robust controls.

APRA and ASIC urged the CEOs to reflect on what the regulators have noted, and to apply superannuation and other industry learnings to their own operations.

Appendix I – Attendees 18 June 2024

CEOs

APRA attendees

ASIC attendees

Attendees 16 July 2024

CEOs

APRA attendees

ASIC attendees

Signed