Colonial or BT Investment Management, Perpetual over the past decade were typically the first names on any database, when a broker needed to raise money. Since the introduction of compulsory superannuation in 1992, in one of the largest shifts in power, the public sector funds and big industry are now the ones in line for the first call.A
Glazing through any database these days, the $140 billion AustralianSuper is soon to be larger than the Future Fund, is followed by UniSuper and those funds that achieve pensions for New South Wales and Victorian public servants. There is a lot of money that can be deployed quickly in industry fund land. To get a big block trade away or has to sub-underwrite a deal, industry funds are some of the first to be called. Slightly smaller than Perpetual's at $17.5 billion AustralianSuper, is the local equities portfolio managed internally, but to bring more money in-house like many other industry funds it is experiencing big inflows and planning.
Following a similar trajectory to their industry peers around bringing money in-house, to the public sector funds have a further $451 billion and becoming more active. Victorian Funds Management Corporation (VFMC), led the way with its own internal team years ago, which holds around $60 billion for the state's public servants, while it is its NSW equivalent, First State Super, is being likened to the next AustralianSuper which has $90 billion under management that.
Industry and public sector funds shift’s in power is putting pressure on board accountability and executive pay along with threatening to entirely cover capital markets. As part of a process known as internalization, brokers are being put aside and fees are under pressure as the not-for profit funds bring money in-house. Two-thirds of UniSuper’s Australian equities money is managed by its 53-strong investment team and has been brought in-house.
The hybrid model has consistently added value since inception, and this is on a very large fund, in some periods it has been significantly more, Mark Delaney said. A year should deliver at least 40 percent more in retirement savings over a person's working life, the benefits of internalization might seem small until you consider that every 1 percentage point increase in returns according to standard industry calculations.
To be run internally within four years managers are targeting half their money, up from 30 percent currently, over at AustralianSuper. $150 million annually in fees is expected to save by this to its 2.2 million members. Over the past decade, fees have already halved and external managers to manage money can now expect to earn between 20 and 30 basis points.
This has impacted the profit of big retail funds and has led to the closure of smaller funds. Industry funds do not pay as much brokerage and have built their own research teams. Companies are cutting the middle men and reaching out directly to the money in the industry and public sector funds.
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