Competitive and regulatory pressure – leading to greater peer awareness and less investment diversity – is the risk that most keeps Anna Shelley awake at night.

Shelley, the investment head of the new Catholic Super and Equip Super joint ­venture, says APRA’s heat map will greatly exacerbate the problem of peer pressure and change the way that portfolios are built. She adds that there will likely be more emphasis on beating peers than reaching long term investment objectives.

While she supports the regulator’s aim objective of publicly exposing underperforming funds, she says the controversial appraisal system comes at a time when equities have soared so those funds which have the highest allocation to shares will look good on the heat map.

“The best thing that can happen to the heat map is some market dislocation that would see equities normalise and allow some of the alternative investments look as good as the listed assets,” she says.

“The five-year time period used is so short and coincident with this post GFC boom so it’s a bit dangerous.”

Shelley concedes that checking the balance between beating peers and reaching investment objectives is especially interesting for her at the moment as she brings together two very different funds.

Catholic Super and Equip­ formally launched their $26 billion merger late last year. The tie-up between the two super funds came as trustees come under regulatory pressure to consolidate so that members can benefit from economies of scale.

Catholic Super’s balanced default fund returned 13.03 per cent for year ending November 2019 while Equip’s equivalent achieved 12.03 per cent. Neither fund was flagged by the prudential regulator for returns generated during the period under review.

Making mergers work

Shelley says comparing the two super funds on performance grounds isn’t reasonable since their structure and membership base differ widely. Equip’s default balanced fund covers all ages, whereas the bulk of Catholic Super default fund has members who are under 50 where a high growth portfolio makes sense.

“The main challenge will be aligning the product suites between the two funds to ensure they are as fit for purpose as they can be for both member cohorts,” Shelley adds.

“It’s an interesting issue, especially since the joint venture was made under an extended public offer (EPO) licence. Are they distinctly different or can they be served by the same product suite?

“That’s what we will be researching over the next six months.”

Similar to her counterparts, Shelley worries about being caught in a vicious circle of high debt, low rates, low inflation and low growth. Unlike her peers however, Shelley has to look at asset allocation across both funds because under an EPO model, the new entity’s trustee oversees two funds, not one merged fund with two lots of investments.