“Similarly, incorporating other ESG [environmental, social, and governance] and sustainability considerations into the portfolio introduces tracking error risk relative to the performance benchmark, which may not be rewarded over the timeframe before the performance test ‘bites’.”
It also said the reforms would push super funds away from a total portfolio approach and back towards a strategic asset allocation approach.
“We would liken this to going back to an old technology, one that is inferior in return terms by around 0.5% to 1% pa,” it said.
“In effect, the reforms shift a reference portfolio from being usefully operational (a guide to the opportunity set) to being detrimentally behavioural (the management of career risk).”