Chant West counters Grattan Institute on fees

Specialist superannuation research and ratings house, Chant West, has come out in serious disagreement with the findings of the Grattan Institute contained in the interim Financial Systems Inquiry report that high-fee superannuation funds do not generate higher gross returns and that low fees are the best guide to subsequent performance.

Chant West has made a submission to the FSI in which it not only states that it disagrees with such claims, but argues that fees in Australia are, in fact, reasonable when all the relevant factors are taken into account.

"We believe that fees in Australia are reasonable when we take into account the characteristics of our industry," the submission said "In particular, compared with the rest of the world, Australia has a high level of investment in equities, which are relatively expensive to manage. We also have a large number of funds, many of which are relatively small in scale. Offsetting these factors are the highly competitive nature of the industry and the number of investment managers competing for business."

The Chant West submission provides examples of where members of high-investment fee funds, where the fee budget has been spent wisely, had been rewarded with higher net investment returns.

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"We believe a move towards low-cost, substantially passive portfolios would have the effect of reducing net investment performance and, as a consequence, be to the detriment of fund members over the long term," the submission said.

It said that mandating substantially passive, multi-sector portfolios (as suggested by the Grattan Institute) "limits a fund's investments to asset sectors for which there is a market index".

"It denies funds the flexibility to invest in the wide range of unlisted assets (including unlisted infrastructure, unlisted property, private equity and hedge funds) for which no indices exist," the submission said. "While unlisted assets tend to be more expensive to invest in than listed assets, they have proven to provide additional sources of return and diversification (risk reduction) over many years," it said.