“If you’re going down this path then make sure your board is committed,” Press says. In October 2010, CEM Benchmarking published its findings from a comparison of returns among defined benefit funds that insource investment management and those that don’t. It shows that funds with more internal investment management outperform others at the total fund level, and that each 10 per cent increase in resources committed to internal funds management adds an average of 4.1 basis points in net value. The researcher also measured the impact of internal management at the asset class level. Before investment costs, CEM finds no major difference in gross value. However, after costs are deducted, internally managed portfolios of stocks in the Europe, Australasia and Far East index beat externally managed portfolios by an average of 96 basis points. Internally-managed emerging markets stocks beat those managed externally by an average of 28 basis points. But among portfolios of US stocks and fixed income there was little difference. CEM says these findings are consistent, despite funds’ countries of origin and whether they managed more or less than $20 billion.
Merger mania Funds seeking greater scale benefits through mergers is a sign of the times. Julie Lander, CEO of CareSuper, says cost savings would be a likely outcome of the fund’s potential merger with Asset Super. A merged entity would lease one (albeit larger) office instead of two and compliance costs would be minimised. Greater fee income from a broader member base would allow the fund to increase services to members and the overall costs of operation would fall in relation to the fund’s growing size. The Government wants to see an efficient industry managing compulsory savings – particularly if the Superannuation Guarantee rises to 12 per cent – and some superannuation executives believe that scale is the best way to meet this demand. It is unlikely that the Government would outwardly force fund mergers. But Lander says its preference is clear: “The Government would like to see fewer funds,” she says.
