Australian Regulator Says Pension Funds Misrepresenting ‘Cash’ Investments

June 29, 2018 Updated: June 29, 2018    

SYDNEY, Australia—Australian fund managers overseeing the country’s A$2.6 trillion ($1.91 trillion) retirement savings pool are misrepresenting as cash what are in fact investments in risky credit instruments and derivatives, a regulator said on Friday.

In a letter to fund managers, the Australian Prudential Regulatory Authority (APRA) said it had “identified examples in the industry where ‘cash’ investment options appear to include exposure to underlying investments that would not generally be considered cash or cash-like in nature”.

Cash, which according to industry statistics accounts for about 11 percent of the country’s retirement savings holdings, should be available in the form of cash on hand, deposits or cash equivalents readily accessible for withdrawal or transfer, the regulator’s letter added.

Instead, the savings of people opting for ‘cash’ investments are being put by some retirement funds into risky products, such as mortgage-backed and commercial bonds, hybrid debt and even credit-default swaps – which are complex and highly illiquid derivatives, APRA said in the letter.

The letter, seen by Reuters, comes as a quasi-judicial inquiry into finance sector misconduct prepares to investigate wrongdoing in the pension fund sector in coming months. The inquiry has already rocked the country’s banking and wealth management industries, including recommending criminal charges.

Australia’s retirement savings pool is the world’s fourth biggest, investment advisers firm Willis Towers Watson estimates.

APRA, which alongside the central bank is responsible for financial stability in the country, did not say how many funds it had sent the letter to and did not name any funds that it believed had misreported cash holdings.

According to its website, there are about 2,300 superannuation entities registered with APRA, about 200 of which were large public or corporate funds.

The letter, signed by Deputy Chairman Helen Rowell, said it would however follow up with the fund managers it identified in the review and would continue to monitor the issue.

APRA expects licensees to consider the letter’s contents and where necessary, “review and restructure ‘cash’ investment options with exposure to non-cash assets.”

By Paulina Duran

 

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