Portfolio Holdings Disclosure – considerations for preparers and reviewers
The Portfolio Holdings Disclosures (PHD) requirements were first introduced into the Corporations Act[i](the “Act”) as part of the ‘Stronger Super’ reforms. These reforms were created to provide greater transparency in the superannuation industry and allow members to understand where their superannuation is being invested.
In summary, trustees of RSEs are required to publish information on their websites about the identity, value and weightings of their investments.
PHD Regulations
Following the introduction of the reforms, the Government consulted with industry participants and stakeholders on the content and requirements of the disclosures. This consultation ended with the finalisation of the PHD regulations in the Act, which took effect through the ASIC instrument ‘Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021’ (the “instrument”) in November 2021.
The instrument set the due dates for PHD disclosures for each half-year ended 30 June and 31 December (due within 90 days of the period-end), commencing as at 31 December 2021.
Considerations for Preparers and Reviewers of PHD information
As the industry has now completed the first period of mandatory PHD reporting (for holdings as at 31 December 2021), it is a good opportunity to revisit this topic and highlight several key considerations for preparers and reviewers of this information. These considerations include, but are not limited to:
ASIC surveillance of compliance with the PHD regulations,
Valuation methodologies for securities and derivatives,
Appropriate disclaimers in relation to the information presented,
Completeness, form and layout of data, and
Look-through reporting requirements for PHD.
ASIC surveillance of compliance with the PHD regulations
ASIC, in its role as administrator of the Australian Securities and Investments Commission Act 2001 (ASIC Act[ii]), undertakes surveillance to determine entities’ compliance with legal requirements in relation to the Corporations Regulations. This includes Regulation 7.9.07ZA, which provides that trustees of the RSEs must organise information about their investment option holdings in a way that is consistent with the tables in Schedule 8D of the Regulations and provide the data elements as outlined.
Valuation methodologies for securities and derivatives
To assist users with their comprehension of the information and comply with the regulations, trustees should disclose the valuation methodologies applied to their holdings. Trustees should note:
They can use valuation methodologies that are consistent with how investment items are valued for other purposes (for example, financial reporting or taxation), and
The methodologies may cover listed or traded securities, unlisted investments (e.g. property and alternatives) and investments denominated in a foreign currency.
Appropriate disclaimers in relation to the information presented
Relevant disclaimers relate to matters such as:
Where reporting for PHD purposes may differ from disclosure/grouping/classification for other reporting purposes, including financial reporting and APRA reporting[iii].
The inclusion of comments, where applicable, on the non-consideration of personal financial needs circumstances or objectives of users of such information.
References to other publications, such as Product Disclosure Statement(s) and Target Market Determination(s) for further information.
Completeness, form and layout of data
The instrument set the content and layout across the various asset classes and derivatives, including the classification of securities between those that are internally or externally managed and listed or unlisted. In addition, the instrument introduced various items for disclosure (depending on the classification) such as:
Item | Disclosure requirement |
Cash investments | Name of institution and currency. |
Fixed income securities | Name of issuer/counterparty or fund manager. |
Equity securities | Name/kind of investment or name of fund manager, security identifier, number of units held and percentage of ownership. |
Property investments | Name/kind of investment or name of fund manager, security identifier, number of units held, address and percentage of property held. |
Infrastructure investments | Name/kind of investment or name of fund manager, security identifier, number of units held and percentage of ownership. |
Alternative investments | Name/kind of investment or name of fund manager, security identifier and number of units held. |
Derivatives | Split between AUD, USD, currencies of other developed markets and currencies of other emerging markets. In addition, provide effect of derivative exposure on the various asset classifications and those currency groupings[iv]. |
As noted above, the format of the data is to be in accordance with the layout and ordering provided by Schedule 8D of the regulations (tables 1-4).
The provision of data may come from multiple sources for RSEs including internal reporting systems, custodians, fund managers and third-party data providers. This highlights the importance of ensuring data is complete, accurate, as consistent as practical, promptly available and useable for PHD purposes.
Look-through reporting requirements for PHD
The look through reporting under PHD is different to APRA look-through reporting. Under the PHD regulations, look-through disclosure to the first non-associated entity level of a fund's holding structure is required, depending on whether they are 'internally managed' or 'externally managed' investments. That is, for unlisted asset types (unlisted equities, property, infrastructure and alternatives) as well as fixed income assets, the key determination for trustees is whether the relevant assets are 'internally managed' or 'externally managed'.
Where such assets are 'externally managed', the value of those assets is only required to be disclosed on an aggregated basis, with a single line item referring to all such assets managed by the relevant fund manager. For that line item, the trustee is only required to disclose the name of the manager and the aggregate value of the super fund's assets managed by that manager (for the particular asset class).
For 'internally managed' unlisted and fixed income assets, while additional detail is required to be disclosed about the precise asset (e.g. to list the address of real property and the fund's percentage holding of the property, and the name and percentage holding of unlisted infrastructure assets), simply the aggregate value of all ‘internally managed assets’ of that asset class (e.g. all internally managed property assets or all internally managed infrastructure assets) is required.
Trustees of RSEs should consider disclosure of the relevant information in light of any confidentiality obligations owed to their fund managers or co-owners of jointly-held assets.
How we can help
Hall Advisory can assist you with your PHD disclosure requirements for the 30 June 2022 reporting period as follows:
Review and uplift of data source(s) to improve and simplify the reporting process, including assistance in coordination with third party data service providers; and
Assist in the preparation of your PHD information for publishing on your website.
In addition, Hall Advisory’s team of experts can assist you with your ongoing PHD requirements as follows:
Preparation, review and/or update of your PHD policy and procedure to ensure they are compliant with the regulations, not inconsistent with industry standards, remain fit for purpose and useable.
Independent review, uplift, design and/or documentation of reporting processes.
Assistance in coordination of information in the event of requests for further detail from the regulator.
Training services in relation to PHD regulations, documentation and reporting.
For more information about how we can support you in any of these areas, please contact us for a confidential, no-obligation consultation.
Endnotes
[iii] This may include APRA Superannuation Reporting Standard (“SRS”) 101.1 Definitions for Superannuation Data Collections and SRS 550.0 Asset Allocation for items such as Table 2 Asset Class Sector type
[iv] Calculation of the synthetic exposure per APRA SRF 550.0 Table 2 divided by the total value of investments per Table 1 and total value of derivatives per Table 2 (i.e. the net market value of total assets of the fund investment option). Per APRA SRS 101.0, synthetic exposure refers to the increase or decrease in effective exposure in the asset class arising from derivative instruments. Similarly, effective exposure means the sum of the value of all physical assets together with the equivalent asset position of the derivative instruments. The equivalent asset position of a derivative is the dollar amount of the underlying physical asset that needs to be held to generate the same return as holding the derivative.
