Time for super funds to get serious about CPM
Superannuation funds looking for new sources of value-add with their multi-manager active equity programs need to consider a Centralised Portfolio Management (CPM) approach, says global implementation specialist manager Parametric.
Chris Briant, CEO of Parametric’s Australian arm, says: “Market volatility, over-priced equities, scarce alpha and frugal fee budgets are creating a perfect storm for super funds with multi-manager active equity programs. In this investment environment, the logical response is to reconsider how the multi-manager equity ‘jigsaw’ fits together and can be implemented using CPM.
“We have three Australian clients with multiple years’ experience using our tax-managed CPM structure that can speak to their industry peers and explain the benefits of this approach.
“These clients, representing about $9 billion in FUM today, appreciate the elegance of this approach and the important differences between CPM and other approaches such as propagation (a limited after-the-trade solution) and emulation (a trade netting approach which, unlike CPM, risks ‘alpha decay’ by lagging the trade implementation).”
Parametric’s CPM approach separates the idea-generation function of each active equity manager in a fund’s line-up from the implementation function, and centralises the latter.
In a series of research papers published for Australian super funds, Parametric has consistently demonstrated that CPM does not erode manager alpha but adds to it by cleaning up leakages around tax, transaction costs and redundant trading.
Briant says: “There is no substitute for patiently explaining these differences to interested funds and presenting the CPM investment case via in-depth research.
“One effective tool is a free report that Parametric can generate based on a super fund’s own trading history to conservatively estimate how much tax leakage on Australian equity and global equity portfolios a fund could claw back by implementing their trading through tax-managed CPM.
“These reports consistently show leakage costs from multi-manager Australian equity portfolios of at least half a per cent a year, and more for a global equity portfolio.
“Although these analyses ignore fees and transaction costs, they are deliberately conservative in their calculation of benefits which is helpful to funds using the reports to build a business case for CPM.
Briant notes that the more mature stage of discussions with some super funds has moved to the qualitative benefits of CPM, something Parametric has also published on.
“Having a clear, monthly performance report quantifying the value added by CPM is absolutely necessary. We see eyes light up when we tell them the fund gets a whole-of-equities risk dashboard as standard, gets all their ESG questions answered quickly, can centralise proxy voting, gets automatic tax-effective transition management and can segregate pension assets more easily.”
For more information or to obtain a copy of any research cited, please contact:
Simrita Virk at Shed Connect
M: 0434 531 172
Parametric Portfolio Associates® LLC ("Parametric"), headquartered in the United States in Seattle, Washington, with Australian offices at MLC Centre, Suite 6502, 19-29 Martin Place, Sydney NSW 2000, is registered as an investment adviser under the United States Securities and Exchange Commission Investment Advisers Act of 1940. With over $216 billion USD of assets under management as of 31 December 2018, Parametric is a global asset management firm offering investors a variety of portfolio solutions, including tax-managed centralised portfolio management, tax managed indexing and factor investing strategies, as well as emerging markets and defensive equities strategies. Parametric Australia is a division of Parametric Portfolio Associates® LLC that is a majority-owned subsidiary of Eaton Vance Corp, one of the world's most dynamic global asset management companies.
For more information please visit website: www.parametricportfolio.com.au