In keeping with the media tradition of publishing lists of all sorts at this time of year, I&T News presents its own predictions for super funds, combined with a wish list of changes we believe would benefit the industry as a whole.

Here are are our headline predictions for 2011.

1. Improved pension fund governance

2. More fund mergers

3. The return of returns

4. The A$ will rise further and/or fall sharply

5. More international investments

6. New ways to look at asset allocation

7. Improved investment and administration efficiencies

8. Rationalisation among industry bodies

An unexpected consequence of the Cooper Inquiry was how the process highlighted similarities and differences between the main industry bodies. Comments and submissions from the FSC and FPA were scarily similar while those from ASFA and AIST surprisingly different. With the number of super funds continuing to decline perhaps it’s time to look at a merger of AIST and ASFA. There are subtle differences between the two organisations which would be nice to retain but from a research and education-provision perspective – and probably as a lobby group as well – one body representing funds and their management, trustees and members should be more effective.

To be fair, Cooper pointed out some structural impediments to reducing costs, not only focusing on fees. This is where the funds management industry can finally take a lead. It should not have waited for the Cooper deliberations to enforce standardisation to streamline the managed fund process. That’s why we think ETFs have taken off. Sadly, we don’t foresee much progress this year, at least, in the retail sector. Super funds, however, have the power to enforce greater efficiencies on all their service providers under threats to do the jobs themselves. We’d like to see funds doing more in-depth analyses on ways to eke out incremental savings in the management of less-glamorous parts of their portfolios, such as FX and cash.

The GFC has given impetus to dynamic asset allocation – somewhere between tactical and strategic – as well as non-traditional asset allocation approaches. The two main new ways to look at AA are risk parity and risk premia. Risk parity involves leveraging up bonds and de-levering equities for a better risk/return profile. Because of the leverage factor, it’s a hard sell to many funds, particularly super funds which are not allowed to borrow (but this is not insurmountable). The risk premia approach ranks investment groupings according to the historical and expected premium they offer over cash and an assessment as to whether the ‘risk’ is more than justified. New ways to look at asset allocation provide very good news for consultants who often struggled to keep up with the research required to provide good advice during the alternatives boom..

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