Australia: Superannuation Funds - Enhanced Investment Management Governance

Last Updated: 29 April 2013
Article by Jim Bulling, Daniel Knight and Gabrielle Palmieri

The Australian Government has been rolling out a series of significant regulatory reforms of the superannuation industry, many of which will commence in 2013. These reforms are fundamentally designed to enhance the prudential supervision of the industry and introduce a number of new requirements for superannuation fund trustees.

One of the areas targeted by the reforms is the investment management function of superannuation fund trustees. From 1 July 2013, there are some significant new processes which trustees will need to introduce in relation to the engagement of investment managers and the making of investment decisions. Many of these new processes will require increased input from the investment managers and investment professionals engaged by trustees.

As Australian superannuation funds have significant offshore holdings, these new requirements will change the way superannuation trustees interact with offshore investment managers and investment professionals. These offshore investment counterparties will need to understand the new prudential regime if they are to anticipate and comply with the additional requests for information and assistance from Australian superannuation funds.

K&L Gates has offices across the United States, Europe, Asia Pacific, the Middle East, India and Africa, which can assist superannuation fund trustees deal with offshore investment managers and investment professionals no matter where the manager or transaction is located. We are also well placed to assist investment managers respond to the requests of their Australian superannuation fund clients. Thanks to our global platform, K&L Gates' lawyers all over the world are well versed in the new prudential requirements applicable to Australian funds and, having lawyers across our worldwide network who understand the particular needs of Australian superannuation fund trustees, should be of significant assistance particularly in the hectic early days of the reforms.

Some of the issues on which investment managers and investment professional can expect to be approached about by Australian superannuation trustees in the coming months include:

Prudential Standard SPS 530 Investment Governance
This standard is designed to assist trustees to safely invest members' money and monitor the performance of those investments. SPS 530 represents a significant uplift in the mandatory measures which trustees are expected to meet in connection with the due diligence, monitoring and ongoing management of investment portfolios. As a result, investment managers and other investment service providers may be asked by trustees to provide information and reports on a more comprehensive range of criteria than they have dealt with in the past.

There is no doubt that much of the subject matter dealt with in SPS 530 will be very familiar to investment managers and professionals, but some of the detail may require managers and service providers to revisit their own processes and structures to ensure that they provide superannuation fund trustees with all that is required under the new prudential regime. Some of the specific requirements referred to in SPS 530 which investment managers and service providers may be asked to address include the following:

  • assisting the trustee to formulate an investment objective which includes appropriate risk and return objectives for each investment option provided by the manager
  • providing data that enables the trustee to regularly monitor whether investment objectives are being met and the performance of each investment in each option
  • identifying risk factors associated with the sources of returns for each investment strategy and the target exposure to these risk factors
  • identifying how sources of returns interact in different market conditions and the variability and impact of interactions on the overall diversification of the strategy
  • assisting the trustee to determine asset allocation targets and ranges, and the bases on which targets/ranges would be changed
  • undertaking stress testing to assist trustees to confirm the investment strategies are appropriate
  • adjusting the manager's investment reporting methodology so that it is consistent with the trustee's requirements
  • assisting the trustee to identify trigger points for commencement of an internal review of each investment strategy and trigger points for determining that a strategy should be changed
  • conducting or assisting the trustee to conduct sufficient due diligence on investments, which may include an assessment of the current relevant market environment, the valuation methodology of the investment and the projected performance of the investment.

Trustees will also be required to implement a process of review of external investment service providers which must include formal periodic reviews (at least annually), and ongoing measurement of performance which includes an escalation process for inadequate performance.

Prudential Standard SPS 231 Outsourcing
SPS 231 will apply to the outsourcing by superannuation fund trustees of "material business activity". A material business activity is one that has the potential, if disrupted, to have a significant impact on a trustee's business operations. Accordingly, it is expected that all investment manager appointments will need to comply with SPS 231.

The standard requires outsourcing agreements to contain provisions which specifically address a range of a number of issues including the following:

  • the appointment process and how the renewal will be conducted
  • contingency plans that would enable the manager's business activity to be provided by an alternative service provider or taken in-house if required
  • service levels and performance requirements
  • the form in which the data is to be kept and clear provisions identifying ownership and control of the data
  • insurance and appropriate indemnities
  • access and cooperation by the manager in relation to requests from the Australian Prudential Regulation Authority (APRA) or the auditor.

Further, where an agreement is an offshoring agreement (such as when an offshore investment manager is engaged), trustees will be required to consult with APRA regarding risk management prior to entering into any new agreements.

All new agreements entered into after 1 July 2013 will need to comply with all the requirements contained in SPS 231. In relation to existing agreements, trustees must make an assessment of the extent of compliance with SPS 231 and seek to put in place appropriate amendments.

Additionally, any new offshore investment management agreements entered into since 22 November 2012 must comply with a number of the standard's requirements.

Portfolio Holdings Disclosure
In addition to the introduction of a set of new prudential standards applicable to superannuation fund trustees, there are a range of additional regulatory reforms aimed at making the superannuation system more efficient and transparent to consumers. One of the new measures being imposed on trustees is the requirement to publish information regarding each of the financial products or other assets in which the fund's assets are directly or indirectly invested.

Every 6 months trustees must publish on their website information about all financial products and other property in which the assets of the fund are invested (directly or indirectly) at the end of the "reporting day" which is every 30 June and 31 December. The first reporting day for trustees will be 31 December 2013 and the required information must be published by the trustee within 90 days of the reporting day.

These requirements will involve trustees drilling down to all of the underlying assets held on its behalf. Investment managers and other investment service providers will need to engage with trustees to ensure that they are ready to provide the necessary information within the specified timeframes.

Reporting Standards
APRA have also released 35 new reporting standards and forms, most of which will commence on 1 July 2013. These standards specifically set out the requirements for the provision of various information to APRA by a trustee. Some of the reporting standards that may be relevant to the type of information investment managers will be asked to provide to trustees include:

  • reporting Standard SRS 530.1 Investment and Investment Flows which requires specific information such as the value of all investments held directly or indirectly by the fund and the portion of those investments which are managed under individual mandates
  • reporting Standard SRS 702.0 Investment Performance which requires specific information such as investment fees, costs and taxes
  • reporting Standard 533.0 Asset Allocation which requires specific information such as the percentages of asset allocations of the fund and how it compares against the fund's benchmark asset allocation.

Performance-based Fees
The regulatory reforms introduce new restrictions on performance based fees paid to investment managers. Where the arrangement between a fund trustee and an investment manager includes the payment of performance based fees, the trustee is required to ensure that the fees meet certain requirements, including:

  • Where a base fee is also payable under the arrangement, the base fee must be adjusted to be lower than it otherwise would be, were no performance based fee also payable.
  • The arrangement must include disincentives for the underperformance of investments.
  • The period for which a performance based fee is determined must be appropriate to the kinds of investments to which the performance based fee relates.

The regulatoryhere is no doubt that Australian superannuation fund trustees are heading into possibly the busiest period they have ever faced in terms of new regulatory reforms. In relation to the investment management function, the reforms are numerous and comprehensive.

Trustees are going to need considerable assistance from their investment managers and their other investment service providers both within Australia and offshore if they are to have in place the prudential and reporting mechanisms that the Government and the regulator require in the next few months.

At K&L Gates we not only have a global platform with offices in so many important investment markets, but our integrated investment management practice ensures that our practitioners, no matter where they are located, are familiar with the regulatory environment of Australian superannuation funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

K&L Gates has been awarded a 2012 EOWA Employer of Choice for Women citation acknowledging our commitment to workplace diversity.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions