With little warning, your super could be on the move

Two of the nation’s top rated funds – Aware Super and Hostplus – have in recent weeks moved to transition members out of higher-risk options into lower-risk choices. But the moves have surprised many long-term investors in the funds who have been caught by surprise.

At Hostplus, the most successful super fund in Australia, management has closed off top-performing IFM Investor funds to all members, including a stream of self-managed super funds which had been offered the specialist funds as a new way to access unlisted assets.

At Aware, the manager is moving members from “growth” to “conservative” options unless members notify the fund they do not wish to make the change within five weeks.

The changes have come to light following a burst of complaints by investors to The Money Cafe podcast hosted weekly by The Australian.

In both cases, the fund managers have clearly been concerned over the risk settings in their funds, particularly among older members.

Many leading funds are redirecting their investments towards more conservative settings in the light of this year’s market downturn and the risk of worldwide recession. Illustration: John Tiedemann

Many leading funds are redirecting their investments towards more conservative settings in the light of this year’s market downturn and the risk of worldwide recession. With more volatility expected in the months ahead other funds may well follow the lead of Hostplus and Aware.

“Bigger funds are also now very aware of the looming (Australian Prudential Regulation Authority) performance test requirements and would be reviewing all aspects of their operations in that light,” says Xavier O’Halloran at Super Consumers Australia.

Hostplus, a hospitality workers fund with 1.3 million members and $68bn under management, closed two key funds earlier this year. From July 1 the fund no longer offered either its IFM infrastructure fund or its direct property fund.

The funds, which are well regarded in the institutional market, had been made available to SMSFs under an innovative arrangement launched by Hostplus in 2019.

However, all investors have now been moved to the Hostplus infrastructure fund or property fund – two funds from within the group’s seven core choices which also include balanced investment, indexed balanced, diversified fixed interest-indexed, Australian shares indexed and international shares-emerging markets.

It is also clear after more than two years the SMSF brigade did not bite the cherry, with fewer than 2000 SMSFs accessing the Hostplus single manager option since 2019. The fund is due to relaunch the SMSF offering later this year.

Hostplus chief executive David Elia. Picture: Russell Millard

According to Hostplus: “These individual manager options consist of underlying investments that were managed by a single manager. The fund felt this was inappropriate as these options were typically much less diversified – in terms of geographies, industries, sectors and manager styles – than the broader asset classes they generally invest in.

“The fund believes that greater diversification, and a reduced single manager concentration risk, is more appropriate and likely to better support long-term, risk-adjusted returns being achieved by members and investors.’’

Aware is the combination of the previous First State Super, WA Super and VicSuper, with 1.1 million members and $152bn under management. The fund’s attempt to switch all of its investor base to so-called “life cycle investing” could affect up to 400,000 members.

“What appals me is that my superannuation fund has now introduced a risk factor – they are going to do something I don’t want. They have not asked me if I want this change and have only provided me with an opt-out option,” says one VicSuper investor.

Both Hostplus and Aware are among the 10 top-performing funds in the market – Hostplus Conservative Balanced fund achieved 7.1 per cent per annum over the last 10 years, while Aware Super Balanced Growth fund managed 6.8 per cent, according to research group SuperRatings.

Curiously, both Aware and Hostplus also have one other contentious matter in common – the two funds are both understood to be under investigation by APRA over the matter of how they value their private equity investments. The issue has come to a head over contrasting valuations for the high profile unlisted software group Canva.