When you’re handing out billion-dollar mandates, managers will “part the sea for you”. But there’s more than just returns to be weighed when answering the question of what makes a good external manager relationship.
A coalition of Australian and British pension funds representing A$3.25 trillion of workers’ retirement savings has called on the Starmer government to reform policy settings so they can tip more money into the energy transition in the UK.
APRA test to ‘bifurcate’ strategies
The Your Future Your Super (YFYS) benchmarks will require an all-hands-on-deck approach to a “performance test to be reckoned with”, according to Willis Towers Watson’s Nick Callil.
With funds required to inform members if they fail the test – an “unpalatable action for any fund” – and barred from accepting new members into an underperforming product if they fail twice in a row, a “hierarchy of objectives will be needed to ensure the priorities for portfolio design are clear.”
“Conceivably, we could see a bifurcation of strategies adopted among funds,” Callil, the WTW head of retirement solutions, wrote in an article titled ‘A test to be reckoned with’.
He says: “Those with a strong brand name and market presence, or a well-defined and ‘sticky’ membership base, may consider a failure of the test (at least for one year) to be manageable and hence choose to maintain a higher priority to the existing investment strategy.
Those with a weaker franchise might make passing the test the highest priority, dialling down the underperformance risk to an acceptably low level.”
According to WTW’s research, a MySuper product designed to meet its existing objectives will have a 10 to 20 per cent chance of failing the performance test over the eight-year period by which it is measured.
This means super funds will have to determine what levels of risk they’re comfortable with or otherwise wind back tracking error to reduce the risk of failure, potentially reducing long-term member returns by diminishing the chance of meeting or outperforming existing objectives.
“With the introduction of administration and advice fees, the test is no longer a pure investment objective for which the task of monitoring and managing performance against the benchmark can be delegated to the investment function,” Callil wrote.
“A whole of business approach will be required, with the Board, CEO and other business functions involved in the assessment, monitoring and strategic approach towards the test. Fee pressure relative to peers, already high, will increase.”
