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”.
Empirics wows US funds with predictive analytics
Australian super funds seem to be well ahead of their international counterparts in terms of engagement with members if the response to a presentation by Empirics Data Solutions chief executive, Darrell Ludowyke, at a global CEM Benchmarking conference is any guide.
Ludowyke presented at the conference in Chicago earlier this month – an annual event by the specialist pension fund analytical advisory firm – and said that the funds were particularly impressed with the “predictive analytics” work that Empirics was doing with its Australian and New Zealand clients.
Empirics, a Link Group subsidiary, helps its clients analyse the online and other behaviours of members in order to predict what they may do in the near future – such as change investment options or even leave the fund.
“The propensity of members to defect is a popular thing to analyse,” Ludowyke said last week after returning to Australia.
Hints that this may be the case will come from either frequent online activity, checking account balances and investment options, or phone calls to the contact centre asking for information. Such hints give the fund time to get a financial advisor to get in touch with the member and see if he or she would like assistance.
Ludowyke said: “I think we are five or more years ahead of where funds are overseas. But a lot of them are defined benefit funds, so there’s a different dynamic. With the growth in 401(k) funds [a US type of employer-sponsored portable defined contribution fund] there is a bubbling sense that they should be doing more with their members.”
A new and likely expanding area for predictive analytics to be of use is with retirement products. Apart from the obvious signals to do with approaching retirement age, Empirics can also provide warnings to do with sequencing risk. By bringing in external data sources – from the media, for instance – it can warn the fund that certain members may have a heighted exposure to certain big events, such as Brexit.
“These are things which can influence behaviour,” Ludowyke, said. “We access data from the internet, all news items, and filter them through ‘spiking’ topics. We do sentiment analyses as a further input to our models.”
He said it was not necessarily the larger funds which were most keen to use this sort of analysis and improve member engagement. “The smarter players are embracing it… They recognize it is not an IT function; it’s a discipline in it’s own right. The culture has to come from the top.”
He said that “four or five” US pension funds and two from the UK were interested in following up his company’s services. Empirics opened a New Zealand office, run by general manager, Leigh Couper, in Wellington. She was previously head of data solutions in the Melbourne office. Link also has a big presence in super fund administration in New Zealand.
