(Pictured: Raewyn Williams)
After-tax management and other benefits from using centralized portfolio management (CPM) have been given a shot in the arm with the publication of a paper on the topic by Towers Watson. CPM is one of those things – like optimising cash or reducing FX costs – which is often left in the to-do tray.
But, according to Raewyn Williams, a director of Parametric Portfolio Associates’ research and after-tax solutions unit, there is growing interest among super funds and that recent research, including that by Towers Watson, shows how to recapture value lost from tax and implement efficiency to improve a fund’s investment outcomes.
The Towers Watson paper, which was published last month, also shows how investors can gain greater control over their portfolios. View paper here:
CPM involves the separation of investment idea generation from implementation, whereby the transactions are managed through a CPM manager on a whole-portfolio basis to minimize tax and costs.
Williams says: “Towers Watson characterises implementation efficiency as often being a secondary concern to funds management.” The paper also, “observes that having a number of equity managers each independently conducting the same highly scalable function (implementation) is far from ideal”.
She, along with Towers Watson, says not all CPM managers use the same approach, however. “It is important to differentiate in particular between tax -managed CPM and old-style emulation solutions which may have in-built lagging conditions and continue to ignore tax in the way the portfolio is managed and outcomes measured,” Williams says.