Give me a break! The Australian today has a number of articles about a proposal to restrict default superannuation funds to those that perform well. Rather than trying to put systems in place the deny the need for personal responsibility in managing and caring for your Super (measures that will only benefit protection of the status quo) how about getting people more actively involved.
The development of benchmarks that determine whether a fund can receive mandated contributions or not will only further restrict the investment decisions of managers. I mean, imagine the business risk in not just following the pack! It will also lead to even more short termism on the part of managers, something that is rarely if ever in the interest of long term investments. The proposal seems to be to punish under performing funds. However, any benchmark used to determine such performance measures had better have a significant weighting to the risks investors are exposed to. And while performance could probably look at 5 year rolling performance (the investor is generally told they should have a 5-7 year timeframe so why shouldn’t the benchmark), the risk measure needs to be monitored on an almost daily basis. Why? Because a fund manager faced with losing access to billions of dollars of capital if their performance doesn’t pick up, is going to be strongly incentivized to take more risk, and hopefully be rewarded with an uplift in performance. The downside and upside risk to them as an employee is the inverse of the risks for you the investor.
Then we start with the political wrangling as all the major stakeholders try to protect their position and enhance their opportunities (opportunities for the industry and retail funds, unions, politicians etc, not the investors, as they are just a means to an end.)
The whole concept is doomed to be an ineffective, time consuming and expensive mess. It empowers no-one who actually has a right to the money (the superannuant) and is again focused on this notion of making investment safe. Far better to tell people that investing is not safe, it requires their attention and at least periodically a decision or two. If you have a big pot of money (either individually or collectively) then other people want to get their hands on it. So protect it, and don’t leave this function to someone else.