Scientific Beta stresses need for robust risk management as part of APRA’s superannuation performance testing
Daniel Aguet
Following the Australian Prudential Regulation Authority’s (APRA) recent announcement[1] regarding significant improvements in performance test outcomes for superannuation funds and introducing new product performance metrics, Scientific Beta has emphasised its commitment to providing cost-effective investment solutions with a strong focus on risk management.
The Australian Prudential Regulation Authority (APRA) has recently released a comprehensive package of product performance metrics and insights to increase transparency and sharpen superannuation trustees’ focus on improving superannuation member outcomes.
APRA’s Comprehensive Product Performance Package (CPPP) comes after it reported last month a significant drop in the number of MySuper and choice products that failed the performance test in 2024 (37 down from 97) with 52 products that failed the 2023 performance test exiting the market. The CPPP covers 876 MySuper and choice products.[2]
“While the performance of superannuation products has improved following the introduction of the performance test, there are still underperforming products that need improvement, particularly in terms of risk management,” said Daniel Aguet, Deputy CEO and Index Director of Scientific Beta.
“This underscores the importance of robust risk-controlled strategies for retirement savings, which aligns with Scientific Beta’s Market+ framework. This framework allows investors to pursue outperformance and sustainability goals while maintaining tight control over benchmark-relative risk,” he said.
“Scientific Beta’s Market+ framework offers tailored solutions for investors aiming to achieve financial outperformance and sustainability objectives, all while maintaining close alignment with standard market benchmarks,” he said.
For investors with limited risk budgets, the Market+ framework offers a reliable and transparent approach. By focusing on portfolio-level risk management and avoiding potentially unreliable stock-level optimisations, it allows for the efficient integration of financial and sustainability objectives, according to Mr Aguet.
“The advantage of Market+ Indices is their ability to integrate a variety of goals within a robust and transparent framework. When it comes to sustainability drivers, we avoid using opaque and unreliable ESG ratings, which diverge significantly across data providers on seemingly identical measures.
“Instead, we focus on verifiable fact-based climate measures that do not rely on crystal balls, such as forward-looking climate transition risks, green revenues based on regulated taxonomies, and science-based targets. Our factor strategies are designed to target exposures to academically validated risk factors that provide rewards over the long term in a systematic and risk-controlled approach. This enables an efficient capture of their return premium through time.”
Regarding the effective management of tracking error, Mr Aguet said that traditional optimisation approaches rely on stock-level risk estimates, which are noisy, leading to estimation errors.
“Our risk management framework allocates between the investor’s unconstrained index—including financial and/or sustainability goals—and a cap-weighted index to achieve the maximum of their goals within their risk budget. By employing a robust statistical model at portfolio-level to forecast tracking error, we avoid the pitfalls of inaccurate and opaque stock-level optimisations.”
Mr Aguet emphasises the importance of transparency in the Market+ methodology: “Each objective serves as an independent building block, which we aggregate into the final index to precisely meet the tracking error target. This structure ensures that our indices are fully transparent, providing clear insights into how each component contributes to the overall strategy. As the regulatory landscape continues to evolve and sharpen, Scientific Beta remains dedicated to assisting investors, including superannuation trustees, in achieving their investment objectives, at a low cost.”
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