After signing up its first client – AustralianSuper – to its pre-trade Tax Analyser program, trading technology provider GBST is set to bring on board four to five fund managers by the end of this financial year and is already running back data analysis for other big funds like UniSuper.
Cbus is another existing client of its after-tax benchmarks that is expected to take the eventual journey to the program.
The Tax Analyser is unique in that it can give clients their expected tax outcome before they undertake the trade. It is particularly useful for super funds that use multiple managers.
It is like the optimisation that custodians provide to clients post-trade but it can put that key tax information in managers’ hands before they make their trades.
“So before they trade they actually know how it’s going to impact the fund,” Kathy Taylor-Hofmann, head of quantitative data services, at GBST says.
GBST has partnered with National Australia Bank to launch TaxEdge to NAB custodian clients but can also work with superannuation funds individually. That exclusive relationship with NAB expires in July this year.
GBST recognised a gap in the market after extensive talks with clients and has patented the service they now provide.
“There were kind of two missing elements,” Taylor-Hofmann says.
“One was for the fund managers to be able to access the tax impact of what they were going to do, at the time they were going to do it.”
“The other very big one was, there was a misalignment because the super funds, when they do their taxation, they do that at a fund level whereas a fund manager was only managing tax in their particularly portfolio,” she says.
The savings to a fund depend on its size and other factors but savings on franking credits alone can range between two and seven basis points.
For AustralianSuper the pre-trade analysis provided by GBST is part of being able to bring a large chunk of its fund management in-house.
“Cbus … first implemented the after-tax benchmarks but they are going to look down the track at something like the Tax Analyser because they see that as progressive journey,” Taylor-Hofmann says.
She believes the business case sells itself, as clients can easily see how much potentially they could have saved over the past three years on back data that GBST can run.
“Unisuper trialled it…We are doing a bit of analysis with them now.”
They haven’t had a superannuation fund client that hasn’t wanted to talk to them about tax optimisation.
“We hear, where the super funds are looking for new custodians, they are asking do you provide pre-trade tax analysis. It is becoming an industry norm,” she says.
The relationship that they have with NAB doesn’t preclude them from providing it to super funds that use other custodians – AustralianSuper’s custodian, for example, is JP Morgan.
“We need the custodian data daily, with NAB we’ve obviously done a tied integration piece,” Taylor-Hofmann says.
