Small can be good for Australian super funds

From

“It is too simplistic to only think that ‘bigger is better’ for all Australian superannuation funds,” said Raewyn Williams, Director of Parametric’s Research & After-Tax Solutions, at the 2015 Australian Superannuation Investment (ASI) conference on the Gold Coast.

“Our research shows that smaller funds can access many of the investment solutions the bigger funds favour, by using Centralised Portfolio Management (CPM),” she said.

“CPM can unlock these potential benefits for the smaller funds by dramatically lowering the minimum assets under management (AUM) requirements that are typically set by managers for separately managed portfolios.”

“CPM also provides a clever way to segregate pension assets to create targeted retirement solutions without sacrificing scale.”

“The recent Cooper and the FSI (Murray) Reports focused almost solely on the benefits of scale and ignored the costs,” Williams said.

“Those reports needed more exploration of the drawbacks of scale,” she said. “If a fund was to list its desired attributes, some of them actually are not well served by scale – for example, agility, access to alternative alpha sources, capacity to innovate and closeness to members.”

“At times size can hinder a large fund’s ability to innovate and adapt to new circumstances and the changing needs of their members.”

“The research does show a positive relationship between scale and lower fees. But this does not answer the real question of whether lower fees really help retirement outcomes for members. We need much more information about the ‘cost’ of lower fees to determine whether leveraging scale to reduce fees is really benefitting fund members.”

Williams also suggested that the industry needs a better understanding of the potential diseconomies of scale and whether the economic concept of a ‘Minimum Efficient Scale’ was something available to a range of funds of different sizes, or only very large funds.

“Ultimately, it is not clear that the size of the fund really matters. The most important outcome for members is the results, and innovative thinking which can produce results, whether they are members of large funds or not.”

You must be logged in to post or view comments.