AustralianSuper has moved to clear futures through a single provider as it seeks to improve operational efficiency.
Despite massive growth, super funds have not been able to exploit their scale to improve efficiency. This is because of the traditional custody model, which suits fund managers, along with other parties “within the overall food chain”, according to Peter Curtis, head of investment operations at AustralianSuper, who will speak at the Investment Operations Conference.
“This is applicable to pretty much any sized super fund, because you disaggregate to the point where it’s no longer working in the interest of your members,” Curtis said.
“We spend a lot of time thinking about, as we call it, gathering all the crumbs on the table. We should be sweeping up to make sure we are working the portfolio and the fund as hard as we can to get the best outcomes for the members.”
Because of this, Curtis has been increasing AustralianSuper’s sophistication with regard to custody to reduce leakage; including how futures are managed.
“It makes more sense to clear all our futures through one provider, then we get a better rate,” he said. “We should be managing collateral around OTC instruments, because then we can see who our counterparties are, where the cash is, thereby making sure we are getting the best returns.”
He added that the fund wants all its specialist Australian equity investments to be in discrete portfolios so the underlying franking credits flow through to AustralianSuper.
“Whereas fund managers say, ‘stick it in our pooled funds’, you get all sorts of inequities there. You can’t get your custodian to then run propagation to make sure you’re choosing the best tax lot to get the best outcome from a tax perspective.”
In a further strategy to increase operational efficiency, the $92 billion fund has also taken action to make sure it’s in the queue for class-action payouts, primarily by using an organisation that sees the portfolio and files relevant paperwork in the US.
“We had a claim from the Lehman Brothers liquidation where we lodged the forms and had half a million dollars come back,” Curtis said.
As class actions are occurring globally every day, there is relatively high probability that a super fund will hold securities in companies subject to actions, and by virtue of holding them have an entitlement. However, unlike normal corporate action where there is an alert process, if a super fund is not looking it won’t know it can claim.
Brian Slade, director of sales and relationship management Australia and New Zealand for Goal Group (a company which specialises in class actions on behalf of institutional investors), said: “The sad part is a lot of institutions don’t have the bandwidth to concentrate; to find they had it in front of them all the time”.
Curtis and Slade will be speaking at the Investment Operations Conference at the Sheraton on the Park, Sydney, on February 24, 2016. To register click here.
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