POWERED BY MOMENTUM MEDIA
In-sourcing to cut costs creates HR nightmare
Superannuation funds that in-source investment skills based purely on cost considerations may run into a human resources (HR) nightmare, according to Sunsuper chief investment officer David Hartley.
Hartley said cost considerations were a good reason for larger funds to bring investment expertise in-house as the amount funds spent on external managers could buy a lot of internal expertise.
"On cost basis alone large funds need to at least consider in-sourcing, there's no question about that - the gun is to the head, they're paying a lot of money in base fees, they have to consider it," he said.
But a sole focus on cost-cutting could lead to a "logical disconnect" and high turnover amongst internal managers as they built up expertise, according to Hartley.
He cited the benefits of the Canadian in-sourcing model which he said provided better alignment, improved vision on assets, cash flow control and an ability to ensure cash flows delivered what the fund needed for its members.
Associate professor of the Australian Business School at UNSW, Professor John Evans, said unless a fund had extreme scale, cost savings through in-sourcing were not guaranteed.
He said funds that pursued internal investment models were swapping manager risk for HR risk.
The HR nightmare which could result included difficulty in meeting pay expectations, sourcing the same expertise as found in external managers, and an inability or reluctance to fire internal staff.
He said in-house management did not like to admit when they had got it wrong.
The biggest issue Evans saw with in-sourcing was governance risk. He said funds that transferred skills in-house would immediately encounter insider trading problems.
Super funds governance structure had been set up for very different purposes, he said.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Superannuation funds have posted another year of strong returns, but this time, the gains weren’t powered solely by Silicon Valley.
Australia’s $4.1 trillion superannuation system is doing more than funding retirements – it’s quietly fuelling the nation’s productivity, lifting GDP, and adding thousands to workers’ pay packets, according to new analysis from the Association of Superannuation Funds of Australia (ASFA).
Large superannuation accounts may need to find funds outside their accounts or take the extreme step of selling non-liquid assets under the proposed $3 million super tax legislation, according to new analysis from ANU.
Economists have been left scrambling to recalibrate after the Reserve Bank wrong-footed markets on Tuesday, holding the cash rate steady despite widespread expectations of a cut.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom 465 Calder Road Calder
99.46 3 y p.a(%)
2
DomaCom DFS Mortgage
95.46 3 y p.a(%)
3
Global X 21Shares Bitcoin ETF
78.55 3 y p.a(%)
4
BetaShares Crypto Innovators ETF
50.39 3 y p.a(%)
5
Global X GlobalX FANG+ ETF
47.50 3 y p.a(%)
