To this end, it is undertaking a research project with Nolan at Warakirri. As part of the research, the manager is building an aftertax benchmark to track the tax implications in the performance of the fund’s $11 billion domestic equities portfolio over the past two years. This benchmark, based on the ASX 300, is “adjusted” at each point in time that AustralianSuper funds another mandate, Curtis says. “The key metric we look at is the amount of tax payable on an annual basis. It’s an area that is difficult to get benchmark data so [that] you can gauge how well you’re doing.” As a result of this work, the fund aims to generate bespoke performance data, which it can present to managers to reinforce discussions about measuring their work on an after-tax basis. “It [will] give us the facts so that we can quantify [tax impacts] internally, and have a sensible discussion with managers about what it means for the fund.” Nolan says after-tax investing could evolve into a common practice if super funds provided economic incentives for managers to adopt the strategies.

“Investment managers are usually very intelligent and competitive. The sooner you measure and reward them on an after-tax basis against a peer group, much of the work will have been put in.” Already, some funds have written after-tax specifications into investment mandates, says Graeme Miller, head of Towers Watson’s investment consulting practice in Australia. Some have also made tax awareness a selection criterion in manager searches. scale matte rs Like in other aspects of investment, scale matters when it comes to after-tax. A recent report by Towers Watson on after-tax investing in Australian shares finds that custodians usually charge between $400,000 and $500,000 annually for tax propagation.

This means that funds need at least $500 million in their Australian equities portfolio to make this strategy costeffective. “Some of these strategies really become cost-effective at reasonably large sizes of funds under management,” Miller says. Some advanced tax management strategies, such as centralised dealing within funds to match-off opposing buying and selling decisions within multimanager structures, enabling funds to reduce transaction costs and CGT losses, require internal resources and are feasible for big funds only. In 2008 AustralianSuper indexed half of its domestic equities portfolio to minimise overlapping holdings among active managers. Because this move has reduced the incidence of opposing buying and selling decisions, centralised dealing to minimise tax is not on the fund’s agenda.