Superannuation funds are tapping into a global research project to find a new form of long-term investment management.
The Thinking Ahead Institute is pooling feedback from a group of 31 international fund managers and pension funds to help create the structure for a long term mandate that has scale, low fees and ultimately gives members a better outcome.
The institute, which was founded in January includes the BT Financial Group, Commonwealth Bank Group Super, First State Super, Future Fund, QIC and QSuper – other members include international fund managers and pension funds.
The institute is run by Tim Hodgson, a director of the Thinking Ahead Group at Towers Watson, who praised the level of cooperation between the institute’s members.
“The journey has been fascinating so far, we are creating an atmosphere where incredible candour can happen, a candour I have not seen that in my career to date.”
He sees one of the institute’s strengths as its combination of asset owners and asset managers; if either party was not involved, he reasons, then any solution created would have less chance of being adopted
Hodgson is hopeful that the institute will make progress on creating the blueprint for a new type of long-term mandate, that will either be adopted by the asset owner members or offered as a product by the asset managers.
He believes the industry has an over emphasis on active management and not enough on driving down costs through passive management and applying the benefits of scale.
He estimates that 80 per cent of the industry globally is focusing on what he describes as the “diseconomies of scale” of seeking managers that can outperform and only 20 per cent on the economies of scale that come from cutting costs and fees; a figure he would like to see reversed, “successful investment is largely about scale and driving down costs,” he says.
Part of this thinking as due to a peer group mentality, which he says has historically led to misallocations of capital, as funds have been more concerned with not looking too different to their peers, rather than optimising outcomes.
He believes a greater focus on passive management is the future for the industry.
“The customer would probably be better serviced by bigger cheaper passive blocks of money, than big blocks of high cost money,” he says.
To get an idea of the work the Thinking Ahead Group should carry out, Hodgson has surveyed members. This has gained feedback on the alignment of the industry to the end member, how efficient it is and to what extent its fee structure is right.
Hodgson believes no such assessment has ever been carried out before.
A key interest of the members, particularly asset managers, is on the optimal organisational structure and the appropriate culture of leadership. Research here focus will cover gender and cognitive diversity, as well as compensation and incentives.