Propagation would help funds minimise tax

Superannuation funds, government funds and multi-mandate managers may be missing out on tax efficiencies, according to DST Global Solutions.

Tax parcel optimisation is a process which allows asset managers and asset owners to reduce tax through appropriate parcel selection when selling shares.

“Tax benefits should be considered alongside other fundamentals and analysis that managers examine prior to trading,” said David Rhind, DST Global Solutions regional solutions head.

“However, delivery of timely and meaningful tax parcel information across managers in a fund, whilst retaining necessary privacy, is a hurdle that the industry needs to overcome,” he said.

For the fund to improve post-tax performance, the pre-trade analysis has to be undertaken at the fund level and be part of a custodian’s standard offering to their clients. To date however, custodians have been offering this service known as ‘propagation’ on a fee-for-service basis as opposed to part of their standard offering, he said.

“With more sophisticated systems, investment managers and asset owners are starting to consider the advantages of tax parcel optimisation services.

“Tax parcel optimisation can be used in both rising and falling markets, resulting in either current or future benefits.”