Super funds embracing insourcing

Two-thirds of Australian superannuation funds expect to bring asset management operations in-house over the next ten years, according to new research analysis released by BNP Paribas Securities Services.

The analysis, undertaken by BNP Paribas Securities Services and the Economist Intelligence Unit and to be published in the upcoming edition of Super Review, points to the insourcing trend extending beyond domestic assets.

"The current phase of insourcing in Australia has seen largely domestic assets taken in-house," the analysis said.

"The next phase will see asset owners with their own fund managers located and trading outside of Australia into Asia and Europe."

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It said asset owners had also reported that they saw some benefits in insourcing fixed income — as yields were so low that every basis point off fees was a help.

The analysis pointed to superannuation funds undertaking insourcing in a formalised way with, for example, one major Australian super fund asking CEM Benchmarking of Canada to look at its options with respect to insourcing.

"The consultancy found that every 10 per cent of assets taken in-house led to a four-basis-point reduction in costs by removing asset management profit margins from the equation," it said.

"The next stage was to look at what asset classes could be taken in-house efficiently, looking at costs, ease of implementation and capacity constraints."

The analysis said equities, direct property, and infrastructure headed the list of likely candidates.