Large superannuation funds will have to look at in-house investment capabilities as a must rather than an option once they reach a certain size, according to JP Morgan.
Senior relationship manager of investor services for J.P. Morgan Australia and New Zealand Seamus Collins said as funds grow, they will stop realising scale benefits from managers.
Funds cannot keep adding managers because after a certain point they do not want money from funds for fear of concentration risk.
"Essentially you plateau in terms of your ability to drive down investment costs," Collins said.
"The managers become less willing to negotiate lower fees for increased funds under management."
Retail funds have always had investment management, but Collins said that while a lot of industry funds are discussing how they might adapt middle office capabilities, they are cautious due to the risks involved.
Funds will have a strong need for timely, accurate data on their investments once they bring middle office in-house, something that is not as important when they have outsourced it.
"We have evolved through a significant investment in making our data available to clients in a number of different ways both on their desktop through dashboards, but also through data feeds," Collins said.
"There's part of your answer as to why more funds haven't moved onto internal investment."
"It's such a significant change that whilst a number of them are considering it and discussing it, it's something that is being done in a cautious way."
Funds will also have to look at strong information technology capabilities, a change in a culture of outsourced entities that have previously not had an investment focus, and upgraded management.
