Super fund mergers have forced some investors to go passive.
The seemingly neverending battle between the advocates of active funds management and those who support passive management has started to take an unexpected twist.
It is a twist that favours the passive investor, although not by choice.
With the continuing consolidation of super funds, a number of these institutional investors are becoming too big to freely allocate funds to active Australian equity managers, and they are left little choice but to keep at least a part of their funds in passive strategies.
"Some of these big super funds are going into passive, not so much because they believe in passive, but because they have got so much money they can't find enough Australian equity managers to give $1 billion to," Perpetual institutional business general manager Gemma Dooley said.
"They have got so much money, these institutional clients these days, that they find it very difficult where to put it."
Super funds also do not want to split their funds into a series of smaller mandates because investing in too many active managers will cause the replication of index returns against rather high fees.
Frontier Investment Consulting, which advises several of Australia's largest super funds, said it had not come across those types of capacity issues yet, but it made sense to keep the number of active managers in a single asset class to a minimum.
"There has to be high conviction in the after-fee, risk-adjusted return to recommend active management or an active manager," Frontier senior consultant Allison Hill said.
"If there aren't suitable managers or capacity available, the alternative would be passive management."
Besides, Frontier typically recommended clients hold a core of about 20 per cent of passive or enhanced passive strategies in equities portfolios in any case to bring down costs and turnover in portfolios, Hill said.
