The alternative asset manager sector needs to step up its disclosure of fees to investors as the full costs of using alternatives are still not fully understood, Access Capital said.
"More work needs to be done on disclosure [of fees]," Access Capital chief executive Alexander Austin said. "The industry relies on self-reporting of fees, but if a fee sits inside a fund or a fund-of-fund, it is easy to not have it reported," he said.
The industry needed to move away from having managers responsible for reporting on their own fees, to having an independent assessment of the costs.
"I like the idea of an audit standard, where auditors have to sign-off," Austin said. A better disclosure of fees by alternative managers would help the current debate about the fees of super fund default options, including MySuper.
The Cooper report has calculated the expense of alternatives in portfolios at 89 basis points, based on a report of audit major Deloitte, but Austin said these figures did not correspond with the realities of investing.
"The cost focus is a good initiative, [but] I found the numbers a bit hard to believe," he said.
"Private equity is a 500 plus basis point asset class; I don't know how you can solve that.
For 80 basis points you can't do private equity hedge funds; maybe you could do some infrastructure and property," Austin said.
He said it was important to have an allocation to alternatives in a MySuper option, as the majority of members are still in default options. "In your default fund you want to deliver good results that are appropriate for most people," Austin said.
The current consolidation in the super industry might help in bringing down the costs of using alternatives.
"Benefits of scale are often overstated; there are no mind-blowing economies of scale in super fund mergers.
But alternatives is an area where there can be economies of scale," Austin said. Large super funds will have a role there, because they can deliver alternatives more cheaply," he said.
Creation of increasingly larger funds would also see super funds take a more bespoke approach to managing their alternatives allocation.
"The merger dynamic makes it more interesting; as funds get bigger they can have more customised approaches," Austin said.
"The way a $20 billion fund approaches alternatives is totally different than a $1 billion fund would. We build bespoke approaches and we think that that is where the market is heading," he added.
But the current consolidation was a mixture of threat and opportunity, Austin said. "It is disruptive and there will always be winners and losers."
Access Capital is experiencing the impact of consolidation first hand as it is likely to lose Westscheme as its client after the Western Australian fund completes the merger with AustralianSuper.
The firm still has a transitionary role advising on the alternatives portfolio of Westscheme while the merger proceeds.
