The Road to Reward:
For Better After-Tax Returns, Should Super Funds be Turning to Their Custodian or a Specialist Investment Manager for Help?
Investing with an after-tax focus is an idea whose time has come. But every idea is only as good as its implementation, and superannuation funds are now facing the important question of who can help. In this research paper, we examine two alternative approaches available to funds today. The first is a custodian solution known as ‘propagation’ (or Tax Parcel Optimisation). The second approach employs a specialist investment management solution known as Tax-Managed Centralised Portfolio Management (CPM).
Below we describe their differences and highlight the factors which make one approach more appealing than the other, depending on the fund’s varying objectives and preferences. We also offer the results of our analysis of the real-life trading histories of a sample of Australian superannuation funds to compare the return benefits of propagation and Tax-Managed CPM. We finish the paper with a suggested decision framework to help funds practically consider these key alternatives to determine the ‘best fit’ solution for their needs and objectives.