The Cooper Review pointedly suggested that trustees must consider tax consequences when instructing managers about mandates. The after-tax implications are too important to get it wrong. Industry experts have said there would be some profound changes in funds managers’ behaviour as the influence of after-tax benchmarks became more widespread and super funds began to manage their accumulation and pension assets separately. Andrew Nolan was passionate about after-tax implications in Australian equities and the downside for super members when managers or trustees were wrong. Nolan, head of investor solutions at Warakirri Asset Management, said funds should award, measure and review Australian equities mandates on an after-tax basis, thus aligning manager behaviour with member benefits. Warakirri offered a specific portfolio measurement tool, and this service had just been joined by the FTSE ASFA Australia Index Series.

FTSE’s Australian director, Julie Andrews, saw the two services as “complimentary with FTSE being the definitive industry standard benchmark and Warakirri’s offering being a specific portfolio measurement tool”, she said. “Warakirri’s tool still needs to be anchored against an industrystandard benchmark to give a relative picture of a manager’s performance,” she said. “Several large superannuation funds have discussed integrating both the FTSE ASFA benchmarks in conjunction with Warakirri’s specific portfolio measurement tool. Other large superannuation funds have told us that the FTSE ASFA benchmarks more than adequately meet their needs and they don’t require a more customised solution.” ASFA’s CEO, Pauline Vamos, said the association wanted to set benchmarks that funds could track themselves. “We believe (this) is an important step forward in getting funds to report on an after-tax basis. We’re pleased that Warakirri is helping funds really assess their tax management.”

The investment industry had traditionally focussed on pre-tax returns, with the definitive Mercer performance surveys ranking managers on returns gross of both tax and fees. However, the Government had now agreed with the Cooper Review recommendation, stated in its final report, that “the SIS Act should be amended so that trustees have an obligation to have regard to the tax consequences of their investment strategies”. According to Raewyn Williams, the director of after-tax investment strategies at Russell Investments, the new regime would bring to the forefront what multi-managers such as Russell had known for years – that the differences between pre- and post-tax returns were profound, particularly in the domestic equity and fixed-income asset classes. Super funds must choose whether they would use an offthe- shelf after-tax benchmark to measure their managers’ net performance, or invest in a customised solution.

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