The industry fund has taken a 49 per cent stake in subscription vehicle provider Splend alongside IFM and other co-investors as it looks to build a 10 per cent exposure to climate solutions in its global portfolio.
After years of powering super returns into the double digits, US equities are walking a tightrope, and one misstep could send them plunging to earth. But the story that put them up there in the first place still holds true.
Frontier responds on whether fee pressure gone too far
(pictured: Damian Moloney)
Last week’s commentary on manager fees, questioning whether super funds realised the services they contract may be damaged as a result of the pressure, drew a good deal of response from both managers on the one hand and funds and consultants on the other.
The two sides continue to line up in opposition. The commentary used the example of the two most senior sales people at Franklin Templeton having their positions made redundant in order to reduce the firm’s head count and improve cost efficiency. See original article – https://ioandc.com/the-ramifications-of-a-relentless-focus-on-costs-and-fees/
In response, Frontier Advisors’ Damian Moloney, the chief executive, and Fiona Trafford-Walker, the director of consulting, have written this letter to the editor:
“We refer to your recent article entitled “The ramifications of a relentless approach to costs and fees” from earlier this week. While we entirely agree that the two staff made redundant by Franklin Templeton are good people and seasoned professionals, we agree with very little else in the article and make the following counterpoints.
- According to Bloomberg, the ultimate parent of Franklin Templeton, Franklin Resources Inc (Franklin), has posted an average pre-tax margin of 38.1% p.a., and return on equity of 21.3% p.a., over the last five financial years to end September. These are very, very healthy results and do not provide evidence to Frontier that Franklin’s clients are, as you say, “…screwing their managers on fees”.
- It is up to any business whether to invest back into the business or to take profits from it. These decisions include staff appointments and redundancies. An alternative decision could have been, for example, to retain staff in the business and allow the margin to drop slightly. Businesses all over the world make these kinds of decisions every day and there are not many that have the luxury of the margins that we often see in funds management as their starting point.
- The current Australian Government has pronounced that “…the objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.” This is also now the broadly agreed position of the industry about the goal of superannuation. Preserving profit margins for industry suppliers (including Frontier) is not part of this objective, nor should it be.
- Indeed, for fiduciaries of superannuation funds to deliver on the Federal Government’s objective, and more importantly, on their responsibilities to their members, they need to fight hard to preserve each dollar they can for their members’ retirement incomes. We have never argued that superannuation funds should “relentlessly focus on fees” for the sake of it but rather to think about net returns in the context of fees paid, and for funds to wrest back the benefits of scale in their (members’) favour. As the industry continues to grow, we believe that the benefits of this growth ought to accrue to members, not industry suppliers.
– Damian Moloney and Fiona Trafford-Walker”
This is clearly not a debate that is going to go away anytime soon. Investor Strategy News welcomes further commentary from the industry.
