“The last thing the Government should want is everybody invested passively in the stockmarket. Where will it get the money for infrastructure, private equity and nation-building?” she asks. Reynolds does not advocate any Governmental prescription on investment strategy, although she says some guiding principles which mention the long-term benefits of active management would not hurt. Where she fears the final MySuper regulations may end up being too strict is in the area of performance fees paid to funds managers. “I suppose it’s easy enough to apply a [performance fee standard] to a single asset class like Australian equities, but it’s difficult when you have funds investing offshore and into a greater diversity of opportunities. You don’t want Aussie super funds missing out on a great offshore infrastructure deal because the fee scheme being offered didn’t exactly comply with some Stronger Super standard.” Fundie fees the easiest target When he was financial services minister, Nick Sherry aimed to drive the headline superannuation fee across the industry down to a cap of 1 per cent. Jeremy Cooper, in the end, did not advocate such a limit on fees, despite some early rhetoric which appeared to favour indexing as an investment approach, with more emphasis on beta generation from the asset allocation in a ‘lifecycle’ fund framework. His talk of a complete ban on crosssubsidisation, including between a low-cost My Super fund and more sophisticated investment options run by the same trustee, also did not come to pass in the final report. He made it clear, however, that there was some fat to be cut from the system, and that fees paid to funds managers, both for management and performance, would be part of the trimmings. Michael Rice, founder and director of Rice Warner Actuaries, “We have a price war. The new battleground is 100 basis points and it’s a battle of defaults, not extra options” Fiona Reynolds … performance fee caps would restrict investment opportunities says cost savings from investment fees are the benefits which can most readily be passed on to members. Funds management fees account for a large part of the costs paid by each member and, particularly after a period of widespread poor performance during the financial crisis, are an “easy target” for reduction, he says. Hurt by investment losses and wary of financial engineering, funds and members want certainty, and because future investment returns can never be accurately forecasted, fees are up for negotiation. “Investment performance is a promise,” Rice says. “For that reason, costs have a disproportionate emphasis because people compare what they can.” So they focus on costs. “You do want some sort of benchmark for costs. But [focusing on] costs in isolation actually distorts things. “If cost became the primary consideration, it might distort the long-term investment strategy and could be detrimental to member returns.

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