Fund managers sacking super funds to get better margins

Fund managers are increasingly sacking their superannuation fund clients as they are able to get a better margin elsewhere, according to Spirit Super.

Spirit Super chief investment officer, Ross Barry, said while super funds were looking for scale benefits, especially when merging with another fund, they needed to hold negotiations in good faith.

“Scale benefits don't deliver themselves and the danger is if you go into a merger and you sit back and you think that all of a sudden they're going to fall out of the sky and you're going to operate at a lower cost base and it just doesn't happen unless you make it happen,” he said.

“Unfortunately that involves some pretty hard negotiations, there's very tough conversations around your own internal cost base, and there's very tough conversations you have to have with managers and asset managers.

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“The key challenge in this is that you have to have those negotiations in good faith because you might be going to a manager that served you incredibly well, created lots of value for your members over a long period of time, and you're asking them for some kind of fee discount or scale benefit to be in a go forward structure.”

Ross said the danger was that the super fund would have the same conversation again a few years later and ask again for a discount or scale benefit.

“I think they'd have their reason to feel a bit duped in all of that. One observation I've made is that I think some managers are pushing back,” he said.

“Some managers are actually sacking their super funds as clients as they get a better margin elsewhere, and I'm not surprised.

“The other thing is that you get managers that close their funds due to capacity constraints, and of course, they just become meaningless in a consolidated portfolio. That's always a shame to have depart with a really good manager just because you can't get more capacity from them.”