Graeme Mather, David Bell and Geoff Warren

Two MDUF Research Awards were presented this week to Graeme Mather from Schroder Investment Management and Geoff Warren from Australia National University.

The awards encourage researchers to use the MDUF v1 research tool and then share their work publicly. They were presented at Investment Magazine’s Retirement conference held in Sydney on Tuesday.

The research awards were presented by David Bell, a former CIO of Mine Super, who is now a PhD candidate at the UNSW School of Risk and Actuarial Studies.

MDUF v1 is an abbreviation for the Member’s Default Utility Function Version 1, which has been designed to assist the industry in providing retirement outcome solutions. A utility function is simply a mathematical representation of an individual’s preferences.

Speaking at the conference, Bell said MDUF is an open architecture metric developed by a working group of academics and industry professionals to better model retirement outcomes.

“MDUF is unashamedly complex,” conceded Bell. “We will lose people along the way. But it taps into the best research academics are doing and they have been exploring this particular problem for over 50 years.”

Because of its complexity, Bell called MDUF a “slow burner” but claimed that people will gradually “get their teeth into it”.

“Industry leads academia in most areas of finance but when it comes to retirement a lot of the best talent resides in academia and it is worthwhile sharing some of the research with the industry,” he told the conference.

Mather accepted the award – on behalf of the authors who are also Schroder Investment Management employees – for a paper titled “Should CIPRs just swing the bat? Assessing retirees’ needs and wants with the Member Default Utility Function”.

Warren’s paper is titled “Choosing and Using Utility Functions in Forming Portfolios for Comparing Retirement Income Strategies: A Road Test”.

Specifically, MDUF v1 considers the question, what is a sensible set of preferences to assume for default fund members in retirement?

It then converted these preferences into a metric that has many applications, including the design of post-retirement strategies, products and services. It can also be used for policy research.

MDUF has been gifted to industry.  The Australian Institute of Superannuation Trustees (AIST) and the Association of Superannuation Funds of Australia (ASFA) act as custodians of this work.