Who’s putting the case for funds?

Chatting with OneVue’s Steve Karrasch last week, just back from the AOIFP conference, I was interested to hear how he had been taken aback by how much funds were out of favour with conference delegates.

The talk was about almost anything else – shares, equity models, indexing, ETFs, even LICs. Collective funds, whether super funds or active managed funds, were almost persona non-grata.

But what he found extraordinary was that no-one was making or restating the case for active management, or even funds in general, with any great effect. The funds industry appeared to have gone AWOL.

I was reminded of this when reading the Weekend Australian’s new “Save our Super” campaign. The main story is behind a paywall, but you can see the campaign homepage here:

http://www.saveoursuper.com.au/

The campaign’s front man Alan Kohler is no friend of large super funds, or the wider wealth industry. This theme runs through” Save Our Super”, although some of the claims are questionable:

– “DIY funds operate on much lower costs”. Wrong, at least much of the time. Average costs for the ~50% of SMSFs under 500K are higher than large super funds, sometimes much higher.

– “Few [super funds] invest directly… they employ specialist asset allocation firms, who decide which investment funds will be handed the loot. Most of those are run either by our big four banks or AMP.” Wrong. Quite apart from the trend to internalization, the asset management businesses of the big four banks and AMP have less than 25% market share.

– “[The Future Fund] is a model for what could have been…it is everything that our super industry is not.” Wrong. The Future Fund has a completely different brief, has no liquidity requirements prior to 2020, and publishes less investment information than many leading super funds. As for portfolio costs, they rose 50% in 2010-11 to 64bps – putting the Future Fund in a similar place to most large diversified super funds.

But as with the AOIFP conference, where is the industry in this debate? The industry is failing to effectively defend its role and highlight the benefits it delivers to investors. The critics are winning the debate by default.

Whose responsibility is it to make the case for funds?

In fact it’s the responsibility of everyone who works in the industry to put forward its case, and this is equally true for all types of participants, whether commercial or not-for-profit. There is a common interest in the bigger picture here.

Let’s remind ourselves of some benefits of funds and funds management generally:

– Cool headed professional management
– Protection from fraud
– Buying power and wholesale investment / transaction costs
– Exposure to assets which individual investors could never access
– Cheaper in many cases

We need industry leaders to step up and contest the public debate. Large super funds, whether retail or not-for profit. Asset managers who manage their investments. Service providers who depend on a healthy industry. Associated industry bodies.

It needs to be kept in mind that while the attackers claim pure motives, many are simply aiming to advance their own competing business models.

In this context, engaging in the public debate needs quality research and thought leadership, done competently and persistently, contrasting with and calling to account inaccurate or unbalanced criticisms.

This need not require new expenditures; reallocating some management time and marketing spend should be enough. But the case must be put, urgently, or we will continue to have a public debate – and ultimately public policy – dominated by parties unfriendly to funds.

Posted In: Trialogue