The introduction of MySuper could bring some of the constraints of the retail investment industry to the institutional sector, which could result in super members missing out on less liquid, but good performing investments, according to a hedge fund manager.
"I think MySuper is just the institutional version of the way the wholesale business is aggregated up to very basic building blocks," Financial Risk Management (FRM) chief executive Richard Keary said.
"So having seen it not working in the wholesale market, it is not going to work in the institutional market."
Keary argued the focus on fees and simplicity meant investments with quarterly liquidity or less, including emerging market macro funds, would not be incorporated into MySuper portfolios.
But some of those illiquid investments had better returns than regular equity and bond funds, he said.
"The criticism of MySuper [is] that it does renounce so much that interesting investments just don't find a place," he said.
Keary ran the BT Global Return Fund, previously known as the Rothschild Global Return Fund, until he left the company in 2007.
The fund was based on a portfolio managed by Grosvenor Capital Management, which had quarterly liquidity, but BT offered the fund with monthly liquidity through a bridging mechanism.
"In 2006, it started to have trouble and we had a liability mismatch developing in that fund," Keary said.
But instead of offering investors who wanted to redeem their money a percentage in cash and a percentage as a share in the illiquid part of the portfolio that would be sold off over time, as Grosvenor did, BT decided to terminate the fund.
"Grosvenor had a terrible year in 2008, but it did not close, it continued to grow and they are now bigger then they ever were before," Keary said.
"But someone made the decision that the BT fund couldn't deal with the underlying investment and that liquidation was the right course to take. That to me was a product failure, not an investment failure."
He said those types of product failures were a direct result of the overemphasis on liquidity, and that such a focus would only allow for investments that produced average returns.
But he did not go as far as stating that the introduction of MySuper would lead to more product failures.
"God, I hope not. [But] the focus on liquidity and fees locks out a lot of other investments," he said.
He said ultimately this development would contribute to driving more high account balances out of the large superannuation funds and into self-managed super funds.
"MySuper will drive the large account balance out of super very quickly," he said.
"A lot of self-managed super funds don't sit on platforms, because platforms constrain their choice."
