Actuaries warn on mega funds
One of the central themes being canvassed by the chairman of the Cooper Review into superannuation, Jeremy Cooper, has received a thumbs down from the Institute of Actuaries of Australia.
The institute said the Federal Government should avoid encouraging the formation of a small group of 'mega' superannuation funds in Australia simply in the name of achieving economies of scale.
It said such a move could have the unintended consequence of reducing overall efficiency, including potential investment returns and member services.
The concept of a smaller number of 'mega' funds has been canvassed by Cooper in a range of forums, including the recent Association of Superannuation Funds of Australia (ASFA) conference in Melbourne.
However, in its submission to the second phase of the Cooper Review, the institute said while economies of scale could work for superannuation funds and members up to a certain level, they could thereafter have the perverse impact of reducing efficiency and investment performance for members.
The Institute of Actuaries' superannuation spokesman and managing director of Watson Wyatt in Australia, Andrew Boal, said a very large superannuation fund’s investment decisions might become more difficult to implement in some sectors if the size of the transactions affected market prices.
“As a result, some investment decisions would be constrained and some investment performance could be lost through an inability to add value through active management,” he said.
Boal said the institute was also very cautious about the idea of super funds becoming asset owners, instead of just investors, and questioned whether super fund trustees had the expertise to effectively perform such a function without being distracted from their main fiduciary role.
AUTHOR
Mike Taylor
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