“When we hear the words ‘bells and whistles’, what we really hear is: ‘too much investment choice, we don’t want commissions, and we want these MySuper products to be comparable’,” Chant told the Fiduciary Investors Symposium, a conference run by Conexus Financial, publisher of Investment Magazine, in Manly last month. On the surface, the proposed cost savings looked appealing, he said. “Why wouldn’t you want a simple, low-cost product that didn’t have bells and whistles, no commissions and a $40,000 benefit?” Treasury estimates that over 37 years, the residual fee savings gained by cutting exposure to active strategies would accrue to $33,000 in the average super fund member’s account. But Chant West analysis finds that, in the same period, the impact of a 0.3 per cent lower return each year from passive management would create a $32,000 loss, and 0.5 per cent less would deliver a $53,000 loss. “That $40,000 benefit is absolute nonsense. It’s more likely to be a $50,000 loss.”
The Cooper Review signalled a preference for lower costs by commissioning Deloitte to model the adequate operating costs of a $20 billion fund. The consultancy found that such a vehicle required a 0.36 per cent spend on investment costs and 0.30 per cent on administration, totalling 0.66 per cent. This is far cheaper than the industry average. Chant showed an analysis of the fees charged by the largest 30 industry funds – which run “complex, relatively highcost investment options” – on a $25,000 balance. Assuming these portfolios were actively managed and held a 10 per cent allocation to alternatives, members paid fees of between 1–1.5 per cent. But when Chant assessed the funds’ investment performance, he found they satisfied the longterm returns prized by MySuper. Allocations to alternative assets – such as infrastructure, private equity and hedge fund strategies – played key roles in delivering this outcome, even if they maxed Cooper’s cost budget.