AustralianSuper has made large savings on brokerage costs for futures contracts, in one of the latest ways its investment operations department is turning itself from a cost centre into a revenue generator.
The move was prompted by members of its trading team who have been hired to join the in-house equities team at the fund.
Peter Curtis, head of investment operations at AustralianSuper, who will be talking about such savings at the Investment Administration Conference on February 18, said: “Our trading team looked at all our execution rates for different futures brokers and said XYZ is charging us the least, let’s go out to everyone and say that is the rate.”
In the same way, AustralianSuper’s fund managers have been told to clear their futures through the fund’s futures brokers clearing house. This enabled it to be given a favourable rate due to the greater volume of business being brought by one customer. The move has saved the fund tens of thousands of dollars in its first year of operation.
Curtis credits the move with allowing the fund to better manage its cash movements and to get offsets against different portfolios in a way that benefits the fund rather than fund manager portfolios.
“None of these changes are easy to implement because you are asking the fund manager to change their model, some are better at getting on the program than others,” said Curtis. “So you need the resources to keep chipping away to say ‘this is what we are doing’ and follow it through.”
Such savings is one of the key reasons AustralianSuper no longer invests in pooled funds, where it has no control over how the fund is administered.
Curtis believes such middle and back office savings are within the scope of many other superannuation funds. He said that while for a smaller fund such a saving might only generate $10,000, but if 10 such savings can be found then it helps to pay for the people who manage them.
“The earlier you get onto it, the more it compounds and the size of the saving increases as you get bigger,” said Curtis. “We have done a couple of things which are worth millions of dollars and it gets a mindset going of where else can we find these crumbs and start scooping them up.”
Part of the thinking behind the savings is that in transacting AustralianSuper’s investments, the motivations of broking houses and fund managers are not always aligned.
“We are looking at all the leakage points at where there is an agent involved – their motivation is different from ours, they are trying to meet a profit target which starts to skew their focus a little.”
Curtis is speaking on the subject of investment operations as a source of revenue at the 18th annual Investment Administration Conference in Sydney on February 18. The conference is chaired by Leigh Sales of ABC’s 7.30 program.
To register for the conference at the early bird rate of $750 go to https://www.etouches.com/ehome/index.ph.p?eventid=92999 before December 15.