AustralianSuper’s shift to running a third of its assets in house by 2018 will add $180 million to members’ returns, says chief executive Ian Silk, who sees the move as a moral imperative.
The fund is setting up internal teams to run Australian equities, property and infrastructure this year and will steadily take on other asset classes, a process increasing its running of all funds inhouse to between 30 and 40 per cent.
Speaking to the 2013 Annual Stockbrokers Conference on the role of superannuation in financial markets, Silk said the savings would come from stripping out the profit margin that would normally be charged in external fund-manager fees from these mandates.
“We are not assuming that we will do a better job in generating gross performance than our external managers,” he explained. “We are expecting to be as good as those and, assuming that to be the case, we will be reducing our costs such that our model will save us $180 million in five years’ time. So that will be a direct transfer from the wealth management industry to the accounts of members.”
He emphasised the moral imperative in capturing the economies of scale associated with the fund’s ballooning growth – it is expected to reach $100 billion in assets by 2018. He cited the example of a notional fund that has $500 million placed with a manager charging a set fee. The fund then adds $250 million to that pot – which should reduce the proportion of the manager’s fee – but does not pass on the full benefits of that reduction to members.
“This is an area where the industry has not been as successful as it should have been and we really need to redouble our efforts. We need to make sure that the marginal cost of administering the system is close to the marginal cost imposed on members, and that members do not pay a multiple of that cost.”
Silk described the situation as unacceptable.
“[It is] arguably a statutory obligation and if we don’t do it the community will demand significant changes to the system, they will see that it is not operating as it should be.”