Using US established ‘Centralised Portfolio Management’ (CPM) approach can help super funds tailor solutions for pension objectives without changing the existing accumulation mandates, according to a Parametric research paper.
The paper looked at the super fund industry’s deadlock of scale versus segregation. Although traditional super funds pool their accumulation and pension assets to take advantage of economies of scale, the growth of pension assets makes it harder to ignore more customised pension solutions to preserve scale benefits.
The CPM approach was found to be an efficient method for an existing multi-manager equities portfolio without the tax and implementation frictions.
“Most funds believe they would have to sacrifice economies of scale benefits to segregate assets into two separate accumulation and pension pools, and then design targeted solutions for each,” Parametric’s research and after-tax solutions director, and author of the paper, Raewyn Williams, said.
Williams said that traditional approaches potentially had clients doubling the mandates and relationship with managers due to segregation.
“It [pension CPM] is designed to allow the fund to retain its relationships — and scale — with existing managers, leaving managers’ strategies untouched, with the ability to modify the investment strategy,” Williams said.
“Using CPM to solve equity funds’ pension phase problem seems to be a way to maintain the scale benefits of existing arrangements as well as seek to provide a custom solution targeting the needs and objectives of pension members.”
