Industry funds merging to achieve scale and cost efficiencies is not always in the best interest of members, according to Russell Investments.
Russell managing director of industry and government funds Michael Clarke said while some mergers could deliver economies of scale, industry funds should carefully consider whether a merger was the right course of action for members.
“Growing the volume of funds under management (FUM) and then members you think would deliver more scale economy, but the demonstrated experience is that was not achieved between 2004 to 2010,” Clarke said.
“So I am highlighting the fact that achieving economies of scale or what you would hope to get really is something that’s got to be achieved through business strategy and directly targeted.
“It doesn’t just come with growth and it is quite difficult to get those outcomes.”
He said research from Tria Investment Partners showed that from 2004 to 2010 fees for default-option members with $50,000 rose to nearly 1 per cent from 66 basis points, despite growth in FUM and member numbers.
Industry funds should consider mutually beneficial partnerships as an alternative option, he said.
“The emergence of vendors able to expertly provide outsourced super services means a broader depth of resources is within reach and Russell is encouraging funds to consider tailored outsourcing partnerships as an alternative,” he said.
“By selectively combining the individual strengths of the fund and the outsource provider, member interests are maximised and access to resources is strengthened.
“These relationships can relieve governance pressures, reduce risk and increase access to markets and research.”
In May, Russell launched its future proofing service, which offers tailored services to help industry funds grow their member base and develop relevant products.
