Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Socius offering tailored pensions for big fund members
(Pictured: Philip Metcalf)
Socius Technologies, a UK-based investment technology start-up, which has opened a regional office in Hong Kong, has developed a form of protected pensions service for super funds which uses portfolio insurance strategies.
It appears to be a more palatable alternative for members who have so far been reluctant to give up most or all of their lump sums in retirement.
Philip Metcalf, Socius’s head of distribution for APAC, was in Australia recently for client presentations, in which he suggested the retirement phase of the savings system required a different mindset and a new approach from the accumulation phase.
“There’s been a lot of talk about it and plenty of work done but no real engagement with the members as far as I can tell,” he said. “All the information is there for them. Go onto the AustralianSuper website and you can see it all. But there’s still inertia on the part of members.”
The current broad options were to buy a whole life annuity from a handful of providers, the main one being Challenger, or to take a lump sum, invest in term deposits or the like and live off the interest.
“We think you can have something in between with our individualized technology, which is the key,” Metcalf said. “Within the existing regulatory and policy framework there is scope to improve on what we are doing now.”
He said: “The individualised account portfolio insurance provides a secure minimum income whilst allowing the member to potentially benefit from the market upside. It removes the need to lock in historically low interest rates through an annuity, and the risk of reduced income in retirement through market losses.”
Socius partners with other technology companies which provide individualised account services. This means ‘time to market’ is greatly reduced, according to Metcalf.
He believes super funds have done a “great job” through their default funds in the accumulation phase. With the Socius offer, he said, members who didn’t want to take pensions could go “half way” because the pension could be stopped at any time – members could switch it on or off according to circumstances, with the money remaining in the default fund.
