24 April 2017

Over the past week Australian shares were 0.6% lower. Shares in developed countries were 0.5% higher, which was led by the US market gaining 0.8%. Shares in emerging markets rose 0.1%. The Australian dollar was 0.5% lower at 0.7541 US cents. The 10 year bond yield in Australia was 0.06% higher at 2.54% while in the US, the 10 year bond yield closed 0.01% higher at 2.25%. The oil price lost 6.7% to 49.62 US dollars per barrel.

There are just over 200 super funds in Australia. At around $10 billion in assets under management, Mine Wealth + Wellbeing would be regarded as a mid sized super fund. The largest manages over $100 billion while the smallest funds manage less than $0.5 billion.

Size and scale is a much discussed topic in the super industry. Size affects operational efficiencies, services and investments. The focus of this update is on the investment perspectives of size.

A first impression may be that the bigger the fund, the better. This is largely based on the view that more assets under management means greater negotiation power with underlying fund managers and hence lower investment fees, resulting in greater performance.

Large assets under management opens the door to new investment opportunities. Very large funds are able to participate directly in some asset classes such as infrastructure and unlisted property.

The benefits of large assets under management reach a limit at some point, although at what point is unclear. For instance there are some cases where fund managers don’t like to work with very large super funds because their own business exposure becomes highly concentrated to a large dominant super fund. 

There are also cases where interesting small niche opportunities aren’t worth the effort to very large funds. Asset classes like small and micro cap stocks are more difficult for large funds to use effectively.

At our size we find ourselves in a very good position. We’re large enough to have good negotiating power at the table, but not too large that we ignore some of the interesting niche investment opportunities which can add to portfolio outcomes.

Signing off

David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg.

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg.