Colonial First State Global Asset Management (CFSGAM) has launched a new objective fund targeting Australia’s retirement market. The CPI Plus Fund targets a return of the CPI plus 4.5 per cent over a rolling five-year period, and addresses longevity issues by offering a perpetuity solution.
Head of CFSGAM’s global investment solutions group, Joe Fernandes, says the fund is managed dynamically across multiple sources of risk and return in order to deliver to its objectives.
Petr Kocourek, senior portfolio manager at CFSGAM Singapore, says the fund is “truly objective-based” and tackles longevity issues for retirees. He argues customised asset allocation is essential to generating a return that delivers a real income stream in retirement while preserving capital.
However, Epco van der Lende, head of multi-asset solutions at CFSGAM Singapore, says the suitability of the product for retirees depends on their capital savings.
“Four-and-a-half per cent withdrawal on an annual basis is not much if the entire capital is almost nothing. So it’s not fit for everybody, but if you look at the average savings of people, this could be appropriate for a certain sub-group of retirees,” he says.
He believes a CPI-plus-type approach is a very relevant way of looking at the spending problems retirees face.
“You’ve seen in the markets some very complex structured products incorporating insurance things and longevity plays a role in all of that, with all the cost implications as well and the lack of transparency.
“[With] CPI-plus, you can spend a certain percentage of capital and preserve your real capital at the same time, so next year you’re actually in the same situation as this year, so it’s a perpetuity.”
Van der Lende says there are other products more suited to other retiree groups who may be over- or under-capitalised.
The fund opted for CPI plus 4.5 per cent for feasibility and liquidity in the fund. “We want to have a target as reasonable and it should be relevant. And I think the 4.5 per cent is relevant in the sense that, for example for retirees, that has been researched to be some sort of ballpark figure that actually is relevant for a relatively large group of people,” he says.
Van der Lende says that from an investment perspective, it sets the bar high, depending a little on the level of inflation, but it’s still achievable.
“If you would set it to CPI plus 6 or 7… you cannot sincerely state that you will reach that objective with a confidence level that we deem to be appropriate in your offering.”
The fund was incubated in Australia in December 2012 and is available to institutional investors. The fund is managed by the multi-asset team from Sydney and Singapore.