Fund manager capacity restrictions impact super
Super funds which rely on external managers for investment are being constrained by the amount of money they can invest because of capacity restrictions implemented by fund managers, according to Australian Super head of equities Innes McKeand.
Speaking at a Deloitte breakfast in Melbourne, McKeand warned that the bigger the fund gets, the more it will be impacted by capacity issues because external fund managers are unwilling to let their business be dominated by one client.
Super funds will have to move to another fund manager to invest — and that fund manager will implement the same capacity restraints, leading to a long roster of fund managers.
Too much investment is a business risk for the external manager, and fund managers with Australian Super were limiting the amount of capacity they would give Australian Super to manage that risk, he said.
"Their behaviour was on their agenda, and not necessarily on ours," McKeand said.
The net result of all those managers would be a flat/neutral result, and funds would still be paying an active management fee for the privilege, he said.
Internalising assets allows them to break out of that, he said.
Australian Super will be paying $500 million in fees to external managers when it reaches $100 billion assets under management, McKeand said.
Gross performance with internal funds was just as good as that of external funds, while net returns were also better, he said.
Super funds with internal management will also have lower costs, greater insight and be smarter investors all-round, McKeand said.
Internal management would also better align with members' interests, he added.
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