OPINION / As an otherwise sophisticated market, it is remarkable that Australia has consistently ranked bottom of all major global markets for managed funds disclosures. This has been a consistent finding from Morningstar's Global Investor Experience studies, which assess the retail investor experience across 26 markets.

Until now, Australia was the only major fund market with no implemented portfolio holdings disclosure regime. Put simply, Australian retail investors had no regulated right to know what securities (stocks and bonds) their investment and superannuation funds held in their portfolios. Australian Corporations Act amendments that would force super trustees to publish portfolio holdings online were last due to come into effect on 31 Dec 2019 before being postponed. The deadline had already been extended three times previously, in 2017, 2016, and 2015.

What the government released on 11 November, in the final version of its Corporation Amendment (Portfolio Holdings Disclosure) Regulations 2021 has not been worth the wait. The regulations have been meaningfully altered, compared with previous draft versions released to the market, and are now materially below global best practice for portfolio holdings disclosures.

Key takeaways

In its current legislated form, the flaws in the Australian Portfolio Holdings Disclosure Regulations 2021 are many, but Morningstar would call out these specific points:

  • The disclosure requirement of simple asset types like bonds is opaque, making these disclosures meaningless. Simply listing the issuer of a bond tells investors nothing about its credit quality and interest-rate risk.
  • If a superannuation fund was to invest in an external bond fund, it need only disclose the name of the fund manager, obscuring whether the investment was in Australian government debt or emergingmarket bonds, etc.
  • The required disclosure of cash is also opaque and does not allow any scrutiny or the ability for informed analysis as to whether a holding is actual cash or cash-like—or not cash at all.
  • The grouping of derivatives into types makes this meaningless. Take swaps: Is this swapping the return of a volatile asset, or a relatively stable interest rate?
  • The proposed standard only calls for a semi-annual disclosure, and it doesn't cover managed funds themselves. Unless the fund is a related party to an Australian registrable superannuation entity and managing superannuation fund assets, there will be no portfolio disclosure obligations.

What the government has settled on with this regulation is a watered-down asset-allocation requirement, not true portfolio holdings disclosure that is prevalent globally. The only asset class where portfolio disclosure really occurs is in the listed equity section, which holds many of the most wellregulated (lowest risk from a disclosure sense) assets on Earth and is the least problematic area for these regulations to focus upon.

Where the government has landed means there is no way investors could use the now required data for portfolio comparison, nor is there a way you could use this data to understand the true risks of a portfolio. More-granular disclosures and identifiers would have allowed portfolio constructors to conduct deeper analysis to better support end investors in reaching their investment goals. There is no way individuals or groups could identify fraudulent activities using the now-required data.

In addition to the above flaws, Australia continues to lack a code or regulation that would require fund disclosure of stewardship activities.

Finally, the proposed standard only calls for a semi-annual disclosure, and it doesn't cover managed funds themselves. Unless the fund is a related party to an Australian registrable superannuation entity and managing superannuation fund assets, there will be no portfolio disclosure obligations. The regulatory impost is unfortunately on the superannuation trustee and not the responsible entities of managed investment schemes (managed funds) in Australia.

Overall, the regulations offer little value to Australian investors and do not exceed the lowest bar Morningstar sees in any disclosure regulations in other global markets. Put simply, this regulation is retrograde and does not serve Australian investors' best interests.