Paul Bouchey

Qantas Super and Parametric are celebrating the 10th anniversary of their partnership, which has produced enhanced benefits to members each year.

A decade of tax-efficient investment implementation at Qantas Super, working in partnership with global implementation manager Parametric, has delivered significant long-term benefits for Qantas Super members.

Parametric’s Centralised Portfolio Management (CPM) approach separates the idea generation function of portfolio management from the implementation. Centralising the implementation stops leakage from transaction costs, redundant trading and tax inefficiencies.

Parametric is part of Morgan Stanley Investment Management.

Parametric’s Global Head of Research Paul Bouchey said: “Qantas Super was a bold leader in being the first Australian superannuation fund to adopt tax-managed centralised portfolio management at a time when the industry was reluctant to embed tax considerations into investment thinking.

“For a long time, there has been a misalignment in the industry, where investment practices are based on pre-tax principles but retirement outcomes are built on after-tax dollars. The idea of after-tax investing is well accepted but minimally used in practice. There is a big opportunity still to be exploited by most funds.

“The CPM partnership has delivered an estimated saving of A$258 million for Qantas Super members in just under 10 years (till the end of June 2022) across Australian and Global equities portfolios,” added Bouchey.

In 2016, Qantas Super extended the relationship by appointing Parametric as its overlay manager.

The chief investment officer of Qantas Super, Andrew Spence, noted: “Our members have strongly benefited from being part of a CPM structure for listed equities. Implementation efficiency is one of our core investment beliefs and that focus on the effective management of investment expenses, such as fees, taxes and transaction costs, led us to Parametric.”

Daniel Vanden Boom, Managing Director at Morgan Stanley Investment Management Australia said: “We are very pleased to be able to celebrate this milestone and look forward to providing many more years of excellent service to Qantas Super and its members.”

The post Qantas Super and Parametric celebrate 10 years of pioneering partnership appeared first on AdviserVoice.

Mr  Zhang reports to Chris Briant, Head of Australia and New Zealand, Eaton Vance Management (International) Limited and Paul Bouchey, Global Head of Research, Parametric.

As Manager of Research and Strategy, Australia and New Zealand, Mr  Zhang works closely with Parametric and Eaton Vance’s overseas offices to plan and deliver internal and client-facing thought leadership, including pieces relevant to Australian super funds. He focuses on the firm’s after-tax investing, post-retirement and responsible investing capabilities. He oversees Sydney-based analyst Joshua McKenzie and is a member of Parametric’s global thought leadership team in Seattle.

Mr Zhang joined Parametric in 2015 and most recently worked with the firm’s global core platform technology team as Enterprise Data Management Architect.

Before joining Parametric, Mr Zhang was a portfolio manager at a boutique Australian equities asset manager. He previously worked in asset consulting at Russell Investments and as an analyst with the Australian Prudential Regulation Authority (APRA).

“Our Australian business has experienced significant growth in client assets under management and product breadth over the past eight years,” said Mr Briant. “In the next phase of our growth, Whitlam is critical to further developing our Australasian business. He has an intimate knowledge of the funds management industry, having consulted to superannuation funds in Australia, and has deep local subject-matter expertise. All these experiences will prove invaluable in understanding and helping our clients in his new role.”

Mr Zhang replaces Raewyn Williams, who is leaving the firm after seven years to pursue other interests. Mr Briant commented “While we are excited about Whitlam’s promotion, we are sorry to see Raewyn leave and sincerely thank her for her enormous contribution to the business over the past seven years.  We wish her all the very best for her future.”

The post Parametric Appoints New Manager of Research and Strategy, Australia and New Zealand appeared first on AdviserVoice.

Paul Bouchey

Superannuation funds need to get on the front foot and respond to the strategic challenge of developing good retirement solutions now, says global implementation specialist manager Parametric CIO Paul Bouchey.

“Although superannuation funds can follow the Government’s legislative timetable to develop a Comprehensive Income Product for Retirement (CIPR) by 1 July 2022, that’s hardly an optimal outcome for fund members who have retired or are making retirement plans now. They want a timetable dictated by their needs – not Government legislation.

“It will require superannuation funds to ‘get over’ the powerful anchoring bias of an accumulation mindset to design good solutions for retired members and members in retirement-planning phase.”

These comments are echoed by Parametric’s Australian Managing Director of Research, Raewyn Williams, who say superannuation funds should not view developing a CIPR as a chore, but as an opportunity to innovate free of the constraints from benchmarking and peer sensitivity that plague accumulation portfolio design.

“Superannuation funds should appreciate that CIPR represents a license for fresh thinking about how to build investment portfolios that map to members’ needs and objectives, which are quite distinct in retirement. Fundamental matters like portfolio objectives, liquidity and how risk is defined are back on the table. It’s an exciting time, actually.”

Bouchey and Williams say although there is keen debate about the use of annuities (or other innovative longevity risk pooling solutions) in a CIPR, superannuation funds should not be distracted from thinking about clever ways their CIPR or other retirement solution can achieve their equity exposure.

Says Bouchey: “Certainly, it’s clear that the investments backing a CIPR will need to have some exposure to equities or other growth assets. Superannuation funds should be looking now for different approaches, such as specific defensive or low volatility strategies and factor-based strategies that use simple construction rules to produce better-than-market income and volatility outcomes.”

“Other equity options include emerging markets strategies with good downside risk properties and Australian equity strategies that recognise the value of franking credits to retirees as an additional source of yield while addressing the risks of simplistic franking-tilted approaches.”

Williams adds: “Structurally, superannuation funds should also think about whether segregating their pension assets from their accumulation assets – at least for some asset classes – makes sense.”

“We published research earlier this year that suggests this decision should be guided by whether a super fund adopts a ‘mass production’ versus ‘mass customisation’ mindset for its retirement solution design.”

Bouchey says many superannuation funds are starting to commit to “fewer, deeper investment partnerships”, which is a good fit for the client-first, research-driven, collaborative approach Parametric uses as a specialist implementation manager. Bouchey believes CIPR design offers a great opportunity for funds to act on this “deep partnership” principle by finding the right retirement solution investment partner.

“All these retirement portfolio construction ideas can be scoped, modelled, adjusted and re-explored collaboratively between a super fund and investment partner if the latter has a clear sense of the fund’s guiding philosophies and the needs of its retired members.”

As Bouchey sees it: “The investment partner’s job is to design and deliver a portfolio solution that fulfils the fund’s retirement design vision, and continue to collaborate with the fund to evolve this vision and its implementation through time. It’s a continuous journey. But that journey should start now.”

The post Retiring super fund members can’t wait for Government’s timetable appeared first on AdviserVoice.

Ms. Le Berre will join Parametric July 8th and be based in Seattle. She replaces Jennifer Sireklove, who, as previously announced, becomes Managing Director, Investment Strategy. Ms. Le Berre was formerly Director of Investment Stewardship at Charles Schwab Investment Management, Inc. (CSIM), where she spearheaded proxy and corporate governance initiatives. She was previously Vice President, Corporate Governance and Responsible Investment, for BlackRock. Ms. Le Berre earned a B.S. in Economics and Computer Science from Duke University and is a member of the Council of Institutional Investors, where she served as chair of the Corporate Governance Advisory Council in 2018.

According to Ms. Sireklove, “Gwen’s experience in evolving investment stewardship programs, driving responsible investment policy development and understanding how to effectively engage with directors and executives on important issues will be invaluable to Parametric and its clients.”

Based in Seattle, Mr. Davis joined Parametric on June 3 from AQR Capital Management (AQR), where he was Managing Director, Firm-Wide Risk Management. At AQR, he led the research team responsible for providing quantitative risk analysis across all strategies and asset classes. Prior to AQR, he was a Quantitative Researcher at Citadel, managing quantitative portfolio construction for global equities.  Mr. Davis was previously a member of the factor model research team at MSCI Barra focusing on risk methodology and portfolio analytics.  He holds a Ph.D. in Mathematics from the University of California, Berkeley, and a B.A. in Mathematics from Reed College.

Based in Minneapolis, Mr. Hood joined Parametric on April 29 from AQR, where he was lead researcher on risk parity portfolio risk models. Since 2016, Mr. Hood has been an Adjunct Lecturer in the Department of Finance at Carlson School of Management, University of Minnesota, focused on options and derivatives. He holds a Ph.D. and M.A. in Economics from the University of California, Los Angeles, and a B.S. in Economics and B.A. in Mathematics from the University of Minnesota.

“We are delighted to expand our research and development capabilities with the addition of experienced investment professionals.  Ben Davis is expanding our leadership in custom indexing, factor-based investing and systematic alpha strategies. His extensive knowledge of risk modeling strengthens Parametric’s research team and helps us to meet client demand for differentiated research,” said Paul Bouchey, Chief Investment Officer, Parametric. “Ben Hood is bringing industry leading expertise in risk forecasting and liquid alternatives to our research team and our clients.”

“We are committed to providing deep and comprehensive insights to our clients as we help them build customized portfolios,” added Mr. Bouchey, who on November 1, 2019 will become Global Head of Research & Development, Parametric, as previously announced.

The post Parametric announces new head of responsible investing and the expansion of the global research team appeared first on AdviserVoice.

Raewyn Williams

Nest egg could be more than 7% bigger if super fund uses tax efficient investing.

Super fund members are missing out if their fund fails to adopt an integrated tax efficient approach to equity investing, according to global implementation manager Parametric.

Parametric’s new research tracks the experiences of three hypothetical super fund members in two hypothetical funds that differed only in that one fund invested in a tax-aware rather than tax-naïve equity portfolio. The modelling shows that super funds that implement tax-efficient equity strategies could benefit their members with a maximum 7.2 per cent higher savings balance over a 40-year time horizon.

The research directly challenges a view sometimes proffered by consultants and commentators that tax-efficient investing does not benefit super fund members. The argument is that because accrued (future) taxes are deducted from member account balances, tax efficiency inside a super fund’s equity portfolio is like chasing “fool’s gold” with members unable to access the value.

Parametric’s research, by Seattle-based CIO Paul Bouchey, researcher Tim Li and Australian Managing Director – Research, Raewyn Williams, debunks this argument, showing that tax-efficient investing over the life of the member’s participation in the fund, including 10 years of receiving income from the fund after retirement, delivers better financial outcomes.

“In modelling the hypothetical members’ experiences, the lump sum balances accumulated after 30 years of contributions, as the first member prepares to retire, are 4.69 per cent higher if tax efficient investing has been continually practiced,” Bouchey and Williams say. “The extra savings from tax efficiency peak at 7.2 percent while all three members are in retirement.”

In the research exercise, Parametric establishes two competing sets of member account journeys – one exposed to an equity portfolio with a traditional pre-tax focus (ignoring the dividend and capital gains taxes that in fact apply to the portfolio); the other using a tax efficient equity portfolio that mirrors the first portfolio in all other respects.

Parametric compares the value of the different member accounts, using unit pricing rules, every year through a 40-year journey covering each member’s working life (30-year contribution phase) and retirement (10-year drawdown phase).

Based on each member contributing $10,000 a year for 30 years before retirement and drawing down $30,000 a year for 10 years post retirement, the result (net of fees and transaction costs) was that each member of the fund adopting tax efficiency practices was almost $200,000 better off over this journey, as measured at unit-priced member option level, even after accounting for the impact of deferred taxes.

This establishes a clear link between a tax efficient equity portfolio delivering higher after-tax returns to a superannuation fund and higher savings for the fund’s members to help in retirement.

The research assumes the same income, growth and cashflow characteristics in each portfolio, but that the tax-aware equity portfolio halved turnover and prevented higher-taxed “short gains” from being realised in the portfolio. It did not specifically examine the impact of implementing through the innovative Centralised Portfolio Management (CPM) structure for which Parametric has become known in Australia.

The research shows that just before retirement, even after setting aside a provision for accrued taxes, the tax efficient fund had generated around $60,000 – $70,000 extra in each hypothetical member’s account – disproving the notion that tax efficiency inside a super fund does not improve member outcomes.

After around 10 years of retirement, looking back over the members’ journey with the fund, each member had earned almost $200,000 more than in the tax-naïve fund.

Bouchey and Williams say: “This is almost $200,000 more that members can use to meet their needs and aspirations in retirement and it’s wholly attributable to having a superannuation fund who practices after-tax investing in their equity portfolio.

“Along with our full research paper, we are happy to share our underlying modelling driving these results so funds and their advisers can verify these benefits for themselves.”

The post Tax-efficient investing by super funds increases member retirement savings appeared first on AdviserVoice.