Super investment restricted by capacity limits

Capacity restrictions implemented by fund managers are constraining the level of investment from super funds which rely on external managers, according to AustralianSuper head of equities Innes McKeand.

At a Deloitte breakfast in Melbourne, McKeand said that capacity issues impacted a fund more strongly the bigger it got, because external fund managers are unwilling to let their businesses be dominated by one client.

Super funds would need to source further fund managers to invest; however, similar capacity constraints led to long lists of fund managers, he said. The external fund managers that AustralianSuper worked with had limited the amount of capacity AustralianSuper could work with in order to manage their own resulting business risk, according to McKeand.

"Their behaviour was on their agenda, and not necessarily on ours," McKeand said.

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The net result of all those managers would be flat/neutral and funds would still pay active management fees for the privilege, he said.

However, internalising assets allowed funds to break free of that, he said.

AustralianSuper 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 is just as good as external funds, while net returns are also better, he said.

Super funds with internal management will also have the benefits of lower costs, greater insight and be smarter investors all-round, he said, while internal management would also better align with members' interests.