QSuper has more than covered the cost of segregating $10 billion in pension fund assets by taking advantage of a share buy-back with Telstra.

Telstra bought back $1 billion in shares in October as a way of using up spare cash, but the offer was not appealing to all shareholders because of the capital gains tax incurred.

Assets held in the pension phase do not incur such taxes and so although the offer from Telstra was slightly below the market value, it proved popular for funds such as QSuper which have segregated accumulation assets from pension assets and which after tax came out ahead on the deal.

Kyle Ringrose, head of investment operations at QSuper, said the segregation of pension assets was not solely undertaken in anticipation of such buy-backs, but that this single opportunity “more than covered” the costs of going through the segregation process in early 2014.

One of the key reasons for keeping pension assets separate was that it would open up the opportunity for more tax aware investment strategies, for example smart beta strategies that had higher portfolio turnover than a passive market weighted index. Many such strategies may prove relatively less attractive for the accumulation phase for the tax incurred in higher trading, but they could be more attractive in the pension phase. In all cases he noted, the emphasis is not on tax savings but rather on post-tax returns.

To assist in making such decisions QSuper uses specialist software and will be engaging an external party to construct benchmarks for its equities that will help inform tax aware buy or sell decisions. It will also be applying post-tax analysis to all its asset classes for both members in the accumulation and pension phases.

“There will be greater awareness of the actual cost to the members of tax leakage in the fund,” said Ringrose. “The decisions should lead to better member outcomes because they take into account all the factors that affect members’ pockets.”

Ultimately, he agreed that where buy or sell decisions incurred a cost that would not make it worthwhile, it should lead to more considered investment decisions overall.

Kyle Ringrose will be talking on the subject of Performance Reporting and Analytics at the 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 visit the following page https://www.etouches.com/ehome/index.ph.p?eventid=92999