This week marks the two year anniversary of Qantas Super becoming the first Australian superannuation fund to implement tax managed centralised portfolio management.
Last year it saved $23.6 million for members in its default fund – a figure similar to the year before, or an average of 38.3 basis points per year since it launched at the end of July 2012.
Despite these savings, no other fund has followed suit, and Andrew Spence of Qantas Super, normally one of the more reticent of chief investment officers when it comes to publicity, has taken to telling the rest of the industry the worth of the program.
At a plenary session at CMSF in March he spoke of his experience and will do so again at the Australian Institute of Superannuation Trustees ASI conference on September 12.
His message is about tax efficiency rather than tax avoidance and about the Parametric Central Portfolio Management system avoiding the duplication of costs for stamp duty, brokerage, better trade execution and FX.
“You are picking up pennies,” he says, “but if you do it often enough it is very powerful.”
So why haven’t other funds followed?
Part of the issue is that to the best of knowledge there is only one company promoting such a solution in Australia.
Parametric, who are represented by Chris Briant and Raewyn Williams in Australia, have many smart number crunchers in Seattle, USA who organise optimal ways of ensuring tax, stamp duty, brokerage and foreign currency exchange implementation on equity trades for investors globally.
Another issue is the amount of time funds have spent complying with Stronger Super – Spence says the solution took six months to implement.
Then there is the perception that tax will prove too hard or that funds are looking elsewhere for savings.
Williams, director for research and after-tax strategies at Parametric, says funds typically place a larger focus on leakage of members’ returns from fees and costs rather than tax savings.
This is despite members collectively paying $3.3 billion in taxes incurred on their investments, but only $2.5 billion on investment fees and administration costs.
“Some people do believe it is more complicated than it is, but the biggest reason [for not implementing] is that funds have been caught up doing so many other things,” she says.
“Qantas Super had the courage of their convictions and prioritised this, so the feedback we get from other funds is that it is a good idea and we are looking at it, but they have not given it the same priority.”
She explains the process as focusing on tax efficiency on an overall portfolio by an implementation manager who has line-of-sight over all mandates rather than by individual managers.
“Asking individual managers in a multi-manager equity portfolio to each manage CGT in an isolated way independent of each other manager can actually damage the portfolio overall (higher taxes, higher tracking error than if managed centrally).”
In promoting the solution, Parametic says that such co-ordinated efforts to maximise tax efficiency would bring in reliable sources of extra return, as opposed to the unreliable returns that came from chasing market returns and manager alpha.