(pictured: Guy Rundle)
LGIAsuper, the $9.5 billion Queensland local government fund, has appointed Parametric to implement a tax-managed ‘centralised portfolio management’ (CPM) program over more than a third of its portfolio.
The tax-managed CPM program involves assets of about $3.5 billion, and is expected to be implemented by the end of April. It is Parametric Australia’s second big super fund to go with the tax-managed program, following Qantas Super, which adopted its strategy in 2012. Parametric transitioned another large non-super client into the program last year.
LGIAsuper, which also announced a headline sponsorship deal with the North Queensland Cowboys rugby league team last week, currently uses seven Australian and nine international equity managers. Managers in tax-managed CPM will continue to provide investment insights (stock picks), but cost and tax-effective implementation of the trades will be left to Parametric, which already receives feeds of around 150 equity manager strategies daily.
Guy Rundle, the fund’s investment manager, said the decision was based on the potential of tax-managed CPM to improve after-tax returns and portfolio transparency in terms of transaction costs.
“We are acutely aware that every dollar counts when it comes to growing members’ retirement savings. This is another way in which LGIAsuper is working to optimise the investment returns our members enjoy,” he said.
A Parametric study published last year showed that tax-managed CPM can add between 50-90bps a year, before fees, to a super fund’s listed equities portfolio. Chris Briant, Parametric Australia chief executive, said he estimated the LGIAsuper listed equity portfolio’s after-tax returns enhancement to be within that range.
He said: “We have seen the demand for our active and passive after-tax solutions building over the past few years. It takes time to work through understanding tax-managed CPM as a different type of investment structure, but as LGIAsuper worked through the process, the benefits became obvious.”
A CPM program, sometimes called ‘master manager’ or ‘emulation’, involves the implementation of various managers’ trading decisions at a central point, and can save on transaction costs. Tax-managed CPM, on the other hand, ensures that taxes – especially capital gains tax – and other costs become a specific input to the trading decision-making process. This can be more effective than leaving trading to individual managers, as managers don’t have line-of-sight across the entire portfolio’s trading activity.
Seattle-based Parametric has about US$52.4 billion of its total funds under management of US$152.7 billion in various tax-managed investment strategies.