On August 6, James Milne, Head of Product at AlphaCert and Stephen Huppert, Independent Consultant and Advisor caught up to discuss portfolio holdings disclosure (PHD).
In this episode, James and Stephen discuss how PHD affects fund members, its history in Australia and what Super Funds need to implement to be compliant.
If you liked this episode, there are plenty more Alpha Chats to watch on topics like Data Management, Non-Fungible Tokens (NFG) and Climate Change Financial Risk.
Alpha Chats Portfolio Holdings Disclosure Transcript
James Milne:
Hi everybody. My name is James Milne. I am the head of product here at AlphaCert, and I’m here with an industry expert, Stephen Huppert to talk about portfolio holdings disclosure.
Stephen Huppert:
Thanks James, good to be here again.
James Milne:
Great. Well today, our topic is portfolio holdings disclosure (PHD), obviously very topical at the moment and something that’s going to be coming into force for superannuation funds in Australia very soon. Okay, Stephen, do you want to give us a bit of a history on the timelines associated with the PHD in the Australian market?
Portfolio holdings disclosure history in the Australian market
Stephen Huppert:
Yeah, sure, James. It’s certainly got a very long history, but, all things being equal from 31 December this year, superannuation funds in Australia will have to comply with the latest version of the portfolio holding disclosure regulations, which were passed by the parliament a month or two (a couple months) ago. But the road to getting portfolio disclosure regulations up in Australia’s certainly a long one, and it dates right back to 2010 as part of our Cooper review, one of our many reviews into the superannuation industry, and Jeremy Cooper and his review recommended six monthly disclosures from Super Funds. So members could see what they’re investing in. It was first put into legislation or regulation in about 2015. It’s been postponed, I think, we’ve had three or four postponements since then, but it’s as I said all things being equal and depending on COVID, I guess it’s always a reason not to do stuff at the moment. It will be enforced from the end of this year.
What are the key drivers behind the portfolio holdings disclosure regulation?
James Milne:
Right. And what do you think the key drivers are from both an end member perspective and also from the perspective of the superannuation funds and the regulators around this portfolio holding disclosure regulation?
Stephen Huppert:
Yes, and if I sort of think back to the time when it was first proposed, it was very much the belief of the regulators that superannuation fund members should be able to know what’s behind the blindly named portfolios that they’re invested in. So, I mean a balanced option or growth option. I can see the proportion in different shares, most disclosure at the time, I could see very high level, some of those exposures, but the regulators felt that members should be seeing more from a disclosure perspective. In terms of looking at what happens in Australia with respect to the rest of the world, Morningstar publishers, the biennial global investor experience report, where they look at different dimensions of disclosure. What’s been very disappointing is that Australia is consistently at the bottom of the pack. And in fact, not just at the bottom of the pack, but declining. And James, you’ll be pleased to hear that New Zealand rates average, well above where Australia is, and with most other countries across the world at the very top, U.S. Stands out as one of the best jurisdictions from the disclosure perspective.
James Milne:
Oh, that’s good to hear, we’re punching above our weight, just like the Olympics.
Stephen Huppert:
Certainly. And I think that the big question then, is given we’ve got compulsory superannuation and you know, 90% of Australians have exposure to Super Funds, why is it so low? Why is disclosure so poor here in Australia? And if I look at some of the submissions and the reasons why the disclosure regulations have been delayed so many times, the industry is not convinced, it’s a good idea. Not that their members don’t know in general terms where they’re invested, but there’s certainly a lot of push back to the level of detail that is expected by the regulator. And we see in other jurisdictions.
James Milne:
And that’s with regards to opening up your holdings for competition, to look at it as well as impacts to other people in their value chain, such as counterparties and that type of thing. Is that where they’re coming from there?
What does the portfolio holdings disclosure regulation mean for super fund members?
Stephen Huppert:
Yeah. So that’s certainly one of the important considerations. And I guess the other thing, when we think about it from a member experience point of view, the report will be thousands and thousands of lines. And so what does that mean to the average investor, for the average member and will it lead to bad behaviours if they see things and they interpret them incorrectly? So yes, there are some of the other pushbacks by the industry, but despite all that, 31 December 2021, it is happening.
James Milne:
Yeah. And I guess the flip side of that from a member and a responsible investment side of things, you will have members who will be really interested in really specific aspects of what they’re invested in. The example there, we were talking earlier about one of the Australian activists around tobacco divestment who comb through, who was able to comb through their holdings and identify where their super fund was invested in tobacco, and you really started a movement, a groundswell movement around that.
Stephen Huppert:
Yeah, absolutely. And I think from a member perspective, a key driver and why the regulator and the super funds can’t ignore disclosure is both ESG on one hand, so responsible investing, sustainability, those sorts of things. And there’s also the climate change risk aspect as well, which is different from ESG. And we talked about that in a previous Alpha Chats.
How can data management help with portfolio holdings disclosure compliance?
James Milne:
Yeah, from a data aspect, what we’ve seen Stephen from our end is- and this will feed into what we’re going to be releasing soon with the data maturity model is, with this upcoming legislation around portfolio holdings disclosure from the 31st of December, 2021, once you have to disclose this to the market, those with suitable systems and suitable processes in place, will find this a heck of a lot easier to get that data to the level of granularity that’s required out to the market and the regulators.
James Milne:
So one example of what we’ve seen with a larger Australian customer on your side of the ditch is, when it came there, they’ve actually been reporting to the market for a couple of years now, in preparation for this PHD disclosure to come in, when it comes to this, they used to take a multi month timeframe in order to get this data together, take all of the spreadsheets that they had manually manipulated, transformed the data, get it into the required formats, and then publish it out to their website. So, they’ve been able to with AlphaCert, AlphaCert’s data and also hooking in their business intelligence tool to our API, they’ve been able to take what was a multi-month process and turn it into something that takes a couple of weeks. And most of that is really to take the data at the most granular level and roll it back up to be a little bit more user-friendly for the end user on the websites.
Stephen Huppert:
And that’s going to be crucial. Super funds here in Australia at the moment have got so many competing demands from the regulator and from the competition pressures at the moment. And there’s lots of data, lots of system related changes happening. And I think super funds aren’t going to want to spend months every half year putting together their disclosure requirements, especially given that I think they add a lot of value. So, it’s going to become critical that they have the right level of data management maturity in place to be able to handle it in a really efficient manner.
James Milne:
Absolutely. Well, Stephen, thank you for your time today. I think that was a really good Alpha Chats that we’ve just had. Portfolio holdings disclosure, obviously we’re working towards that date 31 December 2021. And yeah, we’ll be keen to keep an eye on progress across the industry and see how everybody’s going in terms of disclosing out to the market.
Stephen Huppert:
Absolutely. Hopefully it means that next time, the Morningstar research comes out, Australia will be above New Zealand in the ratings.
James Milne:
Absolutely. Thanks a lot for your time, Stephen, we’ll talk to you next time.
Stephen Huppert:
Bye. For now.