Just over two years from now, the first MySuper vehicle is scheduled to roll down the gangway, and swallow up all the default members of whichever super fund has created it. In building the vehicle, however, many stakeholders worry that ‘low-cost’ will have been too much of an imperative. Where will these cost savings have come from? Talk to member administrators or group insurers today, and they’ll tell you that they have no fat to spare. So funds management costs seem to be the obvious target for this new austerity. MICHAEL BAILEY and SIMON MUMME report on how a ‘race to the bottom’ on costs may affect the institutional investment industry.

When the Federal Government published its response to the Cooper Review of Australia’s superannuation system on December 17 last year, one of the first responses to the response came, tellingly, from Vanguard Investments. In a missive to the press entitled ‘MySuper promises the gift of lower fees’, the passive manager’s head of retail, Robin Bowerman, saluted the program’s aim of reducing the total fees paid by members by $550 million a year in the short-term, rising to $1.7 billion a year over the longer term. “The focus on cost – and the proposal that trustees will have specific new duties to deliver valuefor- money in terms of long-term net returns – is commendable.” Commendable indeed the active funds management community could be heard sneering.

Why else would an index manager bother to acknowledge and encourage MySuper legislation, if it didn’t think a big uptick in the use of passive investment strategies would be the result? For his part, Bowerman is bemused that the MySuper proposal has brought back the ‘active versus passive’ debate. “We expected to have that argument 15 years ago, when Vanguard was setting up in Australia, but I really do think we ought to move on, and talk about how active and passive management can work together,” Bowerman says. “It’s bizarre that the industry is once again having the debate, but it goes to show you the price tension that MySuper has created out there.” It’s worth remembering that MySuper legislation is a long way away.

While the Government seems very sure that a super fund will be able to offer a MySuper product from July 1, 2013, the regulations governing it are yet to be finalised – a Stronger Super Committee, chaired by Paul Costello (finally answering the chorus asking what he’d do after running the Future Fund) will hold regular meetings to help in this regard. It is certain that the MySuper regime, whatever it finally looks like, will extinguish a principle that the structure of Australia’s superannuation industry has held dear to its heart since the Wallis Financial System Inquiry of the 1990s. “The Wallis report argued that superannuation members could generally be treated as rational and informed investors able to make their own decisions about their superannuation,” the Assistant Treasurer’s office reminded us, in response to the more narrowly focused successor of Wallis.

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