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.
What big funds can do to retain members
(Pictured: Garry Weaven)
Garry Weaven is “sanguine” about the leakage of members from big super funds to the SMSF market, but his old boss at Westpac, Ian Macoun, is not. Nor were too many others as relaxed, at the FEAL national conference, about the estimated A$16 billion which was transferred to SMSFs last year.
The benefits of FOFA, which will effectively ban commissions from funds management companies for financial planners, were understated, Weaven told the conference in Melbourne last Thursday. This was a piece of legislation which would have far-reaching consequences.
He did not doubt that crooked planners would always exist, but at least they would not have the same level of financial incentives to push clients into an SMSF when this was not appropriate.
Ian Macoun, the chief executive of the multi-affiliate manager Pinnacle, took issue with Weaven’s view in a question from the floor at the FEAL conference. He was very worried, he said, about the transfer of funds to SMSFs for various reasons including the likely high allocation of the money to fixed interest and property.
Macoun is a former chief executive of the old Westpac Investment Management in the 1990s, which was effectively outsourced with the bank’s purchase of Rothschild Australia Asset Management followed by Bankers Trust Australia. In his first commercial move after leaving his assistant secretary spot at the ACTU and having played a crucial role in the establishment of industry super, Weaven did a brief stint at Westpac to establish the company’s wholesale property trusts.
“You can say whatever you like Ian,” Weaven joked at the FEAL conference. “After all, you used to be my boss.”
The session focused on initiatives big funds could take to step the tide of high-value members forming their own SMSFs. These included the establishment of a member-directed platform, the provision of other retirement services such as medical insurance and access to retirement services, and the adequacy of available annuities.
Patrick Liddy, the principal of consultancy MSI Group, and Graeme Arnott, the COO and deputy CEO of First State Super, addressed the issue from different perspectives. Liddy said the new-style platforms would revolutionize the way people invest and many people in the super industry did not yet appreciate the trend. Arnott, whose fund may choose to go down this path through its administrator, Pillar, was more philosophical, suggesting that funds “can’t be all things to all people”.
Liddy listed funds which had either announced the introduction of member-directed options or were “seriously considering” doing so. They were: Telstra Super, HostPlus, Cbus, Pillar, QSuper, Legal Super, Auscoal, REST, AustralianSuper, CARE and HESTA.
Arnott said that surveys of people leaving First State Super to set up an SMSF showed that they primarily wanted more “flexibility” with their investments. However, flexibility already existed within the funds, Arnott said.
“Our responsibility (as fund executives) is to educate, build awareness and support informed decision making,” he said.
(See Liddy’s commentary on the FNZ roadshow, also this edition).
