A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
How institutional investors differ: landmark State Street study
The differing concerns, fears and aspirations of institutional investors around the world have been starkly outlined in a landmark study by the State Street Centre for Applied Research. Chinese are more worried about transparency than performance. Australians, who are most concerned about performance, are more worried about their regulators but also distrust their service providers. In Japan they are worried about their regulators, too, but also about their declining relative wealth.
The study, published last week after about a year’s work, involving surveying more than 3,000 investors and other industry participants, shows, according to Kelly McKenna, that while investors have never been more aware of their micro and macro environments, they are exhibiting behaviours that are divorced from their state investment objectives.”
McKenna, the global head of the research centre, said: “While the future of the industry will be determined by the actions investors take, the investment community has clear opportunities to work together to create better solutions for this new economy.”
At the institutional level, pension funds are struggling with the complexities of alternative asset classes, but, at the same time, the low-yield markets have increased their appetite for these investments. They admit they don’t have sufficient understanding of the investments.
At the retail, or adviser, level there is the admission that more aggressive investment strategies are needed to fund their retirement, at the same time that cash levels are averaging 31 per cent in their personal funds.
While a common theme of distrust of service providers’ genuine intentions should be a concern for managers, consultants, custodians and others, the disparities between countries within the APAC region should also require attention.
The full study is available at: http://statestreet.com/centerforappliedresearch
In terms of country differences, the study says that, among investors surveyed, mistrust of financial regulation is much more pronounced in China compared with the rest of Asian Pacific.
In sharp contrast with the overall trend elsewhere, Chinese investors surveyed rank transparency above performance as the most important provider capability.
“While China is expected to rank No. 2 globally by 2020 in terms of liquid financial wealth, critical issues such as transparency and protectionism, as well as internal and political stability, rank highly among investor concerns.”
Australian investors decisively value performance as the leading investment provider capability, while concerns exist that provider firms’ interests outweigh those of their clients when offering products and services. Australia is expected to go from number 12 globally in finacial wealth ranking to number nine by 2020, Japan will drop from number two to three.
For Japan, a shrinking workforce and overall government indebtedness represent large investor concerns, the study says.
