The slow-burn movement for superannuation funds to consider after-tax benchmarks when measuring performance is gaining momentum, with UniSuper joining industry fund peers AustralianSuper, HESTA and BUSS(Q) in gauging the effect of tax upon returns.
UniSuper recently announced that global technology services provider GBST would provide a range of after-tax benchmarking solutions to the $26 billion fund.
From July, UniSuper’s equity managers will have their performance calculated on an after-tax basis, with excess return measured against a GBST-calculated S&P/ASX series of after-tax indexes.
GBST head of quantitative data services, Neil Detering, said the after-tax benchmarks would also take into account the impacts of off-market share buy-backs, capital gains tax the franking credits on investment performance.
But UniSuper did not want a benchmark measuring after-tax performance as it applied to capital gains on equities generally.
Detering said capital gains tax considerations were dealt with at the total-fund level by UniSuper, with each manager not able to get a full view of tax implications.
“It didn’t make sense to try and impose capital gains tax effects in the benchmarks that those managers were working at, because they had no ability to actually manage those issues because it was all done at the UniSuper level,” Detering said.
“Also, potentially, [managers] could make a decision that delivered a worse outcome for unit holders by, for example, delaying a trade because they thought they were doing something beneficial in terms of capital gains, whereas the fund actually had some other tax lots from a different manager.”
Detering said the growing interest in after-tax performance had been given impetus by Jeremy Cooper’s Super System Review.
A submission to the Cooper review by Gordon Mackenzie, of ATAX University of NSW, found that understanding tax implications in relation to investment decisions could boost member portfolio returns by as much as 2 per cent a year.
UniSuper’s head of portfolio analysis and implementation, Dharmendra Dayabhai, said the fund had been looking at after-tax benchmarking and return methodology for some time and the Cooper review had heightened the issue.
“We recognise the importance of post-tax considerations and assessing after-tax performance means we are further aligning our investment managers to the best interests of our members,” Dayabhai said.
“It was important for us to work with an independent and flexible provider that could implement an after-tax model smoothly and we are confident that GBST are best placed to deliver what we need.”