Most investment managers are struggling to deliver effective after-tax investment (ATI) strategies, which can boost yearly superannuation fund returns by up to 1 per cent without increasing investment risk, according to QIC.
“QIC’s experience is that ATI strategies can generate additional return streams for super funds of up to one per cent each year, but only if a tailored approach is undertaken,” QIC’s head of after-tax investing Raewyn Williams said.
“The right ATI solution does not necessarily need to be complex, but it should be best fit in the context of the super fund’s broader investment targets, size, structure, risk parameters and budget.
“It is also important that investment managers understand the difference between minimising tax and maximising after-tax outcomes.”
Most managers struggled to deliver effective ATI strategies as the concept was difficult to implement in practice.
Key challenges facing managers regarding ATI include how they deliver real-time tax data to front office staff before key investment decisions are made and how to measure after-tax performance and adjust for taxable events outside of the manager’s control.
Another challenge is how to embed real cultural change within the investment management team to achieve a true after-tax focus.
No fund should dismiss ATI as just a good idea that’s too difficult to implement, Williams said.
“QIC’s view is more closely aligned with what fund members really want, which is not necessarily lower tax, but better overall after-tax investment outcomes,” Williams said.
“The complexity and diversity of emerging approaches mean that different funds will reach different conclusions to the same ATI question.”
QIC is an institutional fund manager with $65 billion under management.
