The huge saving from internal management

Australian Super saved $200 million in the last financial year by managing assets in-house, according to J.P. Morgan, as more funds consider internal investment.

Last week, HESTA announced it was bringing its active Australian equities team in-house and the cash and fixed income teams would follow suit in due course. This was a trend already evidenced at funds like Australian Super and UniSuper.

In a report on the Future of Superannuation, J.P. Morgan surveyed 12 executives from 11 major superannuation funds including Michael Winchester, head of investment strategy at Aware Super, Michael Clancy, chief executive of Qantas Super, and Peter Chun, chief executive of UniSuper.

The most-popular asset class to bring in-house was Australian equities at 69% followed by fixed interest at 50% and cash at 50%.

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Australian Super, which had around $244 billion, said current insourcing had saved the fund significant sums and it was also opening international offices as it invested offshore.

Peter Curtis, group executive for finance and operations at Australian Super, said the fund had saved $200 million in the last financial year and $750 million since 2013 from running internal teams.

“If we were trying to run the fund on a fully-outsourced model at our size then it would be a much more expensive proposition for members,” he said.

The fund currently ran Australian and international shares, private equity, property, infrastructure, credit, fixed interest, cash, currency overlays, and reserves internally.

“Over time, we’ve expanded across all the asset classes where we invest. As the capability grows, your ability to bring on other strategies just becomes easier because you’ve got the scale, and you’ve got the basic systems and infrastructure in place.”

However, Seamus Collins, chief investment officer at industry super fund Mine Super, which was far smaller than Australian Super, said it could be a risk for smaller funds.

“It’s a big fixed cost in people, but it’s also a cultural cost in how you remunerate staff, and a huge uplift in risk frameworks and oversight and compliance.”