Funds should centralise equity portfolio management

Australian superannuation funds should manage equity portfolio implementation through a centralised provider on a single, according to Parametric.

Director of research and after tax solutions Raewyn Williams believes portfolio implementation and execution should be separate from investment idea creation and should be managed through a centralised portfolio management (CPM) manager.

Referring to a research paper from Towers Watson titled ‘Centralised Portfolio Management', Williams said CPM can retrieve value lost from tax.

The paper said the CPM manager "implements trades put forward by the portfolio's underlying active managers, taking a whole-of-portfolio focus with an aim to minimise transaction costs and tax, while balancing the tracking error introduced relative to the underlying portfolio."

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But Williams said not all CPM methods are the same

"It is important to differentiate in particular between tax-managed CPM and old-style emulation solutions which may have in-built lagging conditions and continue to ignore tax in the way the portfolio is managed and outcomes measured," she says.