Getting fund disclosure right
Disclosure was a 1994 potboiler of a film featuring Demi Moore as a power crazed executive sexually harassing Michael Douglas, playing one of her reports. Yup, seriously, that was the plot.
Fund disclosure has become a hot topic already in 2012, and it has also taken on a rather hysterical tone, inclusive of absurd headlines such as “super secrets”.
As readers of annual reports and other fund publications (sick, we know), there’s no doubt that disclosure does need to be improved – for both super funds and managed funds. Formal disclosure requirements are far too low relative to public companies. In practice, some funds are doing a good job already while some are embarrassingly poor.
But disclosure should really be about transparency principles. Transparency is generally the best policy, especially for a trustee, even though it can be a real pain in practice, and may generate ill-informed, awkward, and even mischievous questions. The trick to getting the balance right is working out what to be transparent about, to what level of detail, for whom, and at what cost.
The debate seem to have lost sight of this, which is perhaps why things are not off to a great start:
? The whipping boy is oddly enough AustralianSuper, apparently because of an unsatisfactory call by the ASIC chairman to the call centre (we’re not sure this is the best way to generate policy for a $1.5 trillion industry). AustralianSuper is not there yet in terms of optimal disclosure in our view, but they’re a lot further along than most.
? We’re in danger of missing the forest for the trees. The debate has dived straight into the detail – such as demands for listings of all securities in a fund, and even all trades performed by a fund. We need to step back and decide what is useful information – and it’s not as simple as many believe.
? For example – how useful is it to know that BHP is 4% of your fund? Seems pretty obvious this is important, right? Well if your fund has a 30% allocation to Australian equities, then 4% is about the BHP exposure you would expect. It might be more useful to know if your fund’s BHP exposure is greatly different to 4%.
The other factor missing is perspective about who wants increased disclosure, and how to get it to them. Here’s the problem: aren’t most members of collective funds supposed to be disengaged? If members are disengaged, they are certainly not going to be interested in extensive fund disclosure.
Something is not quite right here.
If Mr Medcraft is right and lots of members want more disclosure, then the concept of the disengaged member must be wrong (and the conceptual foundation of MySuper for that matter). If Mr Cooper is right, then the proportion of members wanting more disclosure must be small.
A sensible approach to disclosure probably has two parts to it – (1) a standard set of publicly available information about the fund, its key people, financials, and investments which satisfies the principles of transparency, and which serves as the disinfecting power of sunlight; and (2) a more detailed set of information (particularly in relation to investments) for members who actually want it. In super, these members will typically be in choice products, and thus can choose to pay for increased disclosure via higher fees.
Defining what is useful and to whom will be the challenge for the FSC and ASFA as they seek to get this debate back on track. Otherwise we risk fund disclosure becoming yet another bad movie, and another piece of poorly thought through government policy imposed on the industry.