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Choice impedes optimal investment
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Choice of fund may have served to undermine the implementation of effective and appropriate investment strategies by superannuation funds, according to global consultancy Watson Wyatt.
In its latest submission to the Cooper Review, Watson Wyatt has argued that one of the biggest impediments to funds investing in more illiquid assets and assets with longer time horizons is the current arrangements with respect to choice of fund and portability.
“These arrangements have created an expectation in fund members that they can switch funds and/or investment options at any time and with very little notice, even though the vast majority of members never avail themselves of either option,” the submission said.
It said the superannuation system was therefore compromised in terms of long-term illiquid investment for the benefit of a small proportion of members.
However, the submission said that, notwithstanding few members availed themselves of investment or fund choice, there were several potential risks associated with restricting the frequency of such choice.
“In particular, such restrictions could simply fuel the drive to members establishing self-managed funds in order to avoid such restrictions,” it said.
The Watson Wyatt submission said another impediment to trustees availing themselves of the opportunities available in infrastructure projects and other long-term illiquid investments was the requirement for diversification of investments.
AUTHOR
Mike Taylor
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