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(February-2004) Time to let go of benchmarks
Superannuation funds and fund managers need to be less concerned about benchmarking and more focused on achieving absolute returns, according to chief investment officer with major superannuation fund, Sunsuper, Jack Gray.
Gray says there’s been too much emphasis on benchmarking when the recent negative returns generated by the downturn in international equities has meant fund members are far more focused on absolute returns.
In an address to a recent Mercer Investment Consulting Global Investment Forum, Gray argues there is a strong case for managers making the move from a benchmark driven investment policy to one oriented towards absolute returns.
Gray claims that over the past two decades there has been a trend towards the adoption of benchmarks as something of a security blanket for firms concerned about how they will be perceived in the eyes of clients.
“But benchmarks are safe only if you accept that markets actually work,” he says.
Gray is backing up his view on benchmarking with the implementation of a strategy at Sunsuper which has seen around 30 per cent of the allocation being managed under manager risk.
He says he believes that benchmarking actually acts as a disincentive towards risk and that managers tend to use benchmarks as a means of avoiding the burden of innovation.
Gray says that this tends to reflect the views of economic icon, John Maynard Keynes that one of the greatest fears is that of so-called maverick risk — being both “wrong and alone”.
“Benchmarking over-emphasises agents’ interests at the expense of principals’ interests,” he says.
Gray seeks to underscore his arguments by claiming that if managers were responsible for managing the funds of their own families they would be less inclined to embrace benchmarking and more inclined towards looking for absolute returns.
AUTHOR
Mike Taylor
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