Not Every Pension Fund Is Looking to Bring Asset Management In-House

(Bloomberg) -- Asset managers under pressure for losing investment mandates, take heart. This A$30 billion ($22 billion) Australian pension fund is bucking the trend and committing to external investment management, even as larger rivals pour money into building in-house teams.

Host-Plus Pty, a Melbourne-based fund with about 1.1 million members, said funds of its size can reap many of the benefits of the internal management trend without hiring their own teams, according to chief investment officer Sam Sicilia.

“When some of the other funds took mandates in house, we had unsolicited offers of fee reductions” Sicilia said in an interview. “So we will start to see some of that benefit anyway, without having to build the capability ourselves.”

Host-Plus’s stance is in contrast with an accelerating trend to internalize investing across Australia’s bigger pension funds as executives look to boost member returns and cut costs. AustralianSuper Pty, the country’s largest pension fund, last year said it expects to manage half of its assets itself and Queensland-based Sunsuper Pty Ltd. said this week it is planning to almost double staff over the next three years.

The trend is placing further pressure on investment managers who have long complained fees in Australia are already lower than other advanced markets. Average published fee rates in Australia for global equities fell by 50 basis points between 2010 and 2015 and by 28 points for domestic stocks over the same period, according to a Morningstar research paper.

While welcoming the prospect of lower fees, Sicilia said there is a need to be careful. “If we’re to retain an outsourced model, we need to ensure that any fee pressure put on fund managers does not make their businesses unsustainable,” he said.

Some 61 percent of Host-Plus’ members are under the age of 34, according to annual Australian Prudential Regulation Authority statistics. The firm’s customers are employed mainly in the hospitality and service industry.

About 60 percent is invested in public markets with the remaining 40 percent in unlisted investments such as property, infrastructure and private equity. The fund holds virtually no government bonds and no cash.

©2018 Bloomberg L.P.

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