Super funds could boost returns by 59bps: Report

Superannuation funds considering a merger or major investment portfolio changes should implement a program to manage tax costs and transaction costs to deliver meaningful benefits to funds and their members, according to new research.

Parametric said the research draws on concerns amongst superannuation funds about how to meet investment objectives when markets are volatile, the yield on "safe" assets is at historic lows, investment alpha is scarce and most forecasters are "bears not bulls".

"Parametric's view is that a good response to these challenges is to begin by controlling what you can control," the report said.

Parametric managing director of research in Australia Raewyn Williams said this is akin to Australia's stewardship of water in the current drought crisis.

"In drought-stricken Australia we can't predict when it will rain again, but our sense of stewardship means we control what we can control; we limit our shower time, water our gardens at night, install water-saving devices in our homes and so on," Williams said.

"Similarly, in the face of unpredictable investment markets, funds, who are stewards of the retirement savings of Australians, have an opportunity to start with what they can control; investment taxes and transaction costs."

Williams suggests that confusion about the value of managing investment taxes and transaction costs could be a factor in these areas of implementation leakage being overlooked.

"We believe a good conservative guide to the value of an after-tax equity management approach, net of all fees and costs, is around 59 basis points annually," Williams said.

Williams would like to see superannuation funds planning fund mergers, or other big portfolio changes, pay particular attention to the research findings.

"These controllable costs are positively correlated with portfolio changes.  The more changes your fund is planning, the more you are incentivised to put an efficient implementation platform in place before you instigate the changes," she said.

"I understand the temptation to put off new ideas until the big changes are delivered, but superannuation funds with a busy change program should consider prioritising the initiatives that will make the rest of their changes easier to implement and less costly to members."

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