Liquidity constraints and a desire to compete on price is leading retail funds increasingly diverging from industry funds, according research firm Chant West.

Warren Chant, director of Chant West, was speaking in advance of a presentation on the 81 MySuper products launched so far at the Fiduciary Investors Symposium in Victoria November 18 to 20.

He said that prior to the Cooper Review, retail funds’ investment strategies were gradually becoming more like industry funds in order to improve returns.

“Retail funds believe there is a price point that they need to meet to be competitive and most of them are very conscious of liquidity. This has puts constraints on how they manage money and will put limitations on the net return after fees and tax that they will generate for their members.

“In order to meet their price point and their liquidity constraints, they are introducing more passive and inhouse investment, and we think that this is going to mean that the gap between industry funds and retail funds is likely to widen a little bit rather than contract as it was doing.”

The liquidity constraints are caused by retail funds being reliant on even proportions of superannuation guarantee contributions and voluntary contributions, the latter of which tend to dry up in market downturns and lead to favouring more liquid investments.

Chant West research also shows most retail funds have adopted a lifecycle approach, but that only a few industry funds had done so. Retail fund lifecycles tend to be heavily invested in growth assets until the member age of 40, before tapering down about 2 per cent per annum to retirement. Chant said he thought the discussion around lifecycle was a distraction from the debate on how to maximise investment returns.


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