It is also easier to fire an external manager if they are not performing well, he adds.
However, Energy Super invests $237 million in term deposits through ESI Financial Services, a company that was previously wholly owned by ESI Super. “That you can do simply,” Henricks explains.
ESI Financial Services also provides subsidised financial advice about investment options and personal money matters to fund members.
Energy Super aims to use its increased size to lower costs for fund members, Henricks says.
Its weekly administration fee of $1 compares favourably with the $1.50 fee that the $42 billion AustralianSuper charges members for similar services.
The lowest indirect cost ratio (IDR), an investment fee deducted from the earnings on a member’s account, is 0.22 per cent of assets for members using the cash deposit option. The highest IDR is 0.99 per cent for members who choose the SRI Balanced option, according to the fund’s 2011 annual report.
Managing cash through ESI Financial Services has eliminated the 0.1 per cent fee that the fund used to pay a manager for this work.
By combining investment mandates that SPEC and ESI Super held with the same managers, and using its larger scale in fee negotiations, the fund has reduced investment management expenses, says Robyn Petrou, chief executive officer of the fund. Lower base fees for alternative asset managers were agreed on the condition that higher performance fees will be paid once managers reach performance targets.
Performance fees paid to funds managers are included in the IDRs. “Growth” alternatives managers profited most, gaining $1.24 million, or 0.27 per cent of the $454.8 million that Energy Super invested with these managers in the 2010–2011 financial year, according to the fund’s annual report. Fixed income managers received aggregate performance fees of $656,000 and Australian equities managers a total of $654,000.
The fund paid about $8.2 million to investment managers in the last financial year and spent about $12.2 million on operating expenses. Salaries and other expenses for the fund’s 10 trustees cost the fund $616,000.