In the past year, increasing cost pressures from regulators and competition has seen ripple effects across the super industry, with many seeking the security of a larger organisation and consolidating, and many being noted to cut outsourced investment management, instead using internal teams.
But, investors may be challenged in the current scene with poor returns from yield sectors. The US Treasury sold 30-year bonds at record-low yield on Thursday.
Thomas Poullaouec, head of multi-asset solutions, Asia-Pacific at T. Rowe Price, said a need for income and growth in the current lower yield landscape has forced investors to adapt their investments.
“[It] has pushed investors to maintain or even increase the equity allocation in order to still deliver the total return that they promised in terms of cash and CPI plus X per cent, given that yields are so low and it’s likely to remain the case in the foreseeable future” Mr Poullaouec said.
“So you need to maintain a good exposure to growth assets. A way to do that without changing the equity allocation has been to revisit the allocation to active strategy.
“There’s been a trend in the past, which was to manage fees and cost, [by reducing] the total expense ratio by either internalisation or by certain strategies and forms of doing that internally. So through not paying a fee to external manager or by choosing a passive implementation.”
He noted however, with the current low-yield scene, super funds will be forced to not only revisit their equity allocations but also their implementation.
“We have seen some investors also are more keen on revisiting their active manager line-up in order to ensure that they can get better than the index return in order to meet their long-term needs,” Mr Poullaouec said.
He added that he had observed super funds become “hungry for income and lower volatility instruments”, moving into private markets, private credit and equity in the search for better returns with lower volatility, as they’re not priced daily.
“It’s something that they use to also manage the total risk of their superannuation fund,” Mr Poullaouec said.
“So many investors also looking at alternative investments in the way of, let’s say hedge fund-like strategies, to also address the diversification need. It’s definitely something that we have been engaged with some investors on, to discuss some of our capabilities on that front.”
