Investment returns at Qantas Super have gotten a boost from the fund's appointment of a “centralized portfolio manager” to consolidate equity trades previously handled by its external money managers.
Andrew Spence, chief investment officer of the Sydney-based A$7 billion (US$6.2 billion) superannuation fund for Qantas airline employees, said in a Sept. 19 interview that since Qantas Super tapped Parametric Australasia as its CPM two years ago, the Seattle-based money manager's handling of the trades for the portfolio's roughly A$3 billion equity allocation has added an annualized 38.3 basis points to total fund returns.
That gain was achieved with no increase in risk, by allowing the fund's 10 equity managers to maintain the “artisan” part of their craft — their “investment insights, stock selection and portfolio construction” — while ceding the implementation piece to Parametric, said Mr. Spence.
(Parametric, which runs passive allocations for Qantas Super as well, counts as one of the fund's 10 equity managers, noted Mr. Spence.)
Much of Australia's superannuation industry's recent focus has been on cutting costs in areas with inherently uncertain outcomes — such as the pursuit of manager alpha and market beta. Qantas Super has chosen to focus “on an implementation model that just ticks away in the background,' seeking to “restack the value chain in a way that works better for our members,” he said.
Investment consultants in Australia say Qantas Super, the first fund in the country to hire a centralized portfolio manager to oversee its entire equity allocation, is unlikely to be the last.
It's too early to conclude that the scale of the benefits Qantas Super is reporting will persist over market cycles, but with sufficient evidence of operational gains, “I suspect others will follow,” said Graeme Miller, the Melbourne-based head of Australia for investment consultant Towers Watson.
The country's tax regime — with both contributions to retirement funds and subsequent investment gains on those savings subject to a 15% levy — makes Australia's A$1.6 trillion superannuation industry especially fertile ground for CPM, analysts say.
With Australia's capital gains tax on equities held for more than one year dropping to 10% from 15%, having Qantas Super's equity managers executing their own trades represented a “gap in the value chain” that a centralized portfolio manager tasked with delivering “implementation alpha” can fill, said Mr. Spence.
Among other efficiencies, having a single manager oversee trading for the entire equity portfolio boosts opportunities to net trades — should managers be buying and selling the same stock — reducing transaction costs, said Raewyn Williams, Sydney-based director, research and after-tax solutions, with Parametric Australasia.