Not only were agency risks alive and well in Australia’s $1.4 trillion superannuation industry, they were inevitable in a system whose principals – the end-investors – were largely disengaged, the Fiduciary Investors Symposium was told in Manly last month. Defining agents as every commercial participant in the super industry – including trustees, funds managers, asset consultants and the media – speakers explained how their actions put investors’ capital at risk and suggested how this risk could be mitigated. Agents found work in superannuation because the majority of principals did not have the time or expertise to run investment programs to meet their future income needs, explained Professor Ron Bird, a director at the Paul Woolley Centre for Capital Markets Dysfunctionality (PWC).

As a result, an ecosystem of agents had evolved and investors were not benefitting as fully as they should, said Jack Gray, a fellow PWC director but also a special advisor to alternatives placement agent Brookvine. “You should be able to run a fund for 50 basis points,” Gray said. “Customisation is just an excuse to spend the principals’ money – all the bells and whistles are worth nothing.” Speaking on the panel, the CIO at a large insurance fund, who later requested anonymity, agreed the industry had not served investors as well as it should. “Performance isn’t being achieved for clients. If we take basic index returns, and then take out fees, then you’ve got a better performance than what we’ve achieved,” he said. “Manager agency risk is causing poor results for members, and this is a real problem.” However, in a later session, superannuation researcher Warren Chant provided evidence that active investment strategies had, over time, justified their higher fees (see p.17). Prof. Bird said there agency risks were more prevalent in the pensions industry than in others because its principals were, by and large, uninterested for most of their working lives.

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