The healthy 10 per cent-plus return for the average big super fund in the past 12 months is not only good news for members. It’s also good news for implementation specialist managers, such as Parametric, which has been championing after-tax investing since it set up shop in Australia in 2012.
The reason for this is that the tax losses incurred, or earned, in the GFC have pretty much gone. The difference between a fund’s gross return and the return net of tax, fees and charges has become more pronounced again.
Parametric actually set up shop, in the US, in 1987 – not the best year to start any sort of investment business due to the sharemarket crash in October that year. It was a year of market exuberance, which does not favour managers who concentrate on efficiencies, followed by a big fall, which also does not favour such managers because of the subsequent tax losses.
But, in Australia at least, it was the dawn of a new era in superannuation. A year earlier, the Hawke/Keating Government did a deal with Bill Kelty and Garry Weaven at the ACTU to introduce Award super. The die for a new age in super for all was cast.
Befitting a firm which looks after its clients’ pennies as well as their pounds, the 30th anniversary of Parametric has not been a lavish affair. In fact, apart from a coffee bought for this reporter and a small dinner, the milestone went largely unnoticed in Australia. In the US, Brian Langstraat, Parametric’s global chief executive, was asked to ring the opening bell on the New York Stock Exchange to mark the anniversary.
Chris Briant, the chief executive of Parametric Australia, said: “We are proud to be part of a growing and evolving investment management firm. Given Parametric’s success in the US, it was a natural evolution to turn to the Australian market and superannuation funds in particular.
“Super funds’ taxed status – quite unusual by world standards – has made Parametric’s after-tax investment focus a perfect fit. We are starting to see signs that the Australian business will follow a similar trajectory to the US.
“Our Australian business doubled in size last year and after just five years of entry in Australia, we now manage around A$8 billion across a range of tax-managed and systematic alpha solutions.”
He believes that with the losses of the GFC years behind them, most super funds are now paying more attention, again, to the tax they are paying on their double-digit returns.
“We are seeing strong interest in particular in our Tax-Managed Centralised Portfolio Management (CPM), Tax-Managed Factor and Tax-Managed Indexing equity solutions. We also have an innovative way of constructing equity exposure with specific low volatility and downside protection features which super funds seem interested in as a post-retirement solution”
Parametric manages more than US$200 billion, worldwide, in assets for institutional and high-net-worth investors. The firm develops customised beta and systematic active strategies and overlay solutions.
Briant, who spent his formative years in the industry working as a custodian, and then moving to Russell Investments prior to Parametric, says that his first role as an accountant, doing a lot of work for SMSF trustees, gave him a good sense of costs.
“I then spent a decade in custody, where everyone is always looking for savings. Russell was of a similar cost-watching mindset,” he says.
The firm’s first Australian client was the big corporate fund Qantas Super, which has been a great ambassador for after-tax investing. It has also been a trend-setter in looking at ways to improve the efficiency of FX, cash management and other operational aspects of the fund.
Briant says: “We are now seeing quite a few inquiries from fund managers, as well as the funds themselves, asking what CPM is all about. We have incoming calls for a change. I think they have recognised it’s a trend and if they are not part of it they will miss out on future asset flows.
“The funds tend to take up CPM initially for after-tax reasons but then recognise its wider functionality as a platform that puts their hands on the steering wheel. With CPM, they can make their factor bets, implement proxy voting, apply screens for ESG – both negative and positive – and they never need to use a transition manager again.”
– Greg Bright