The latest entrant into the after-tax returns' debate, the NAB-GBST alliance, has been welcomed cautiously by competitors.
Parametric managing director Australia Scott Lawrence said that while after-tax returns were important, it was crucial that super funds had "tax-aware investment strategies at the total equity portfolio-level".
Warakirri Asset Management head of investor solutions Andrew Nolan said one of the essential measures in any after-tax system was "a relevant benchmark that includes both CGT and income tax/franking credits".
GBST quant division head Kathy Taylor-Hoffman said the alliance with NAB would enable the secure transmission of client data to GBST for tax analyser software to operate as close as possible to real-time to benefit clients and their investment managers.
This meant that super fund level tax considerations could be incorporated into the investment process of individual investment managers.
Nolan said four components were critical when considering after-tax investment management. These were "accurate after-tax performance measurement of the portfolio and a relevant benchmark that includes both CGT and income tax/franking credits".
As well, relevant information must be provided to managers to improve decisions for the benefit of members, and funds must have information so that they could allocate capital to the best after-tax investment managers.
Lawrence said tax-aware investment strategies at the total equity portfolio-level were essential.
"Even if all a funds' equity managers are tax-aware, while this is an improvement on tax-unaware investing, it is unlikely to be optimal in after-tax terms at the total (multi-manager) equity portfolio level for the fund," he said.
For example, he said, manager A may believe based on its own trading history for a particular fund that selling X shares of stock ABC today would result in no loss of ABC franking credits for the fund, given the 45-day rule.
However given the trading history in stock ABC of all equity managers for that super fund client, was manager A necessarily correct that their decision to sell ABC would not result in any loss of ABC franking credits for the fund?
"This is impossible to know without a total equity portfolio perspective, which can be achieved through centralised portfolio management," Lawrence said.
Measuring the after-tax returns of total global and Australian equity portfolios was a positive step, however centralised portfolio management was a key strategy to more efficiently implement an optimal after-tax multi-manager equity investment strategy - with a genuine total equity portfolio perspective, he said.
Lawrence believes that services such as the GBST Quant Tax Analyser were "a positive step on the path to genuine tax-aware investment management".
The Cooper Review recommended that fund trustees have express regard for tax consequences, and MySuper products were required to maximise financial returns for members (net of all fees, costs and taxes).
More super funds were now measuring the after-tax returns of their global and Australian equity manager portfolios and implementing tax-aware strategies. For example, Lawrence said, Parametric measured the after-tax returns for six of Catholic Super's active Australian equity managers, and built a customised after-tax index for each manager portfolio.
Nolan said Warakirri worked with more than 30 investment managers, and provided "relevant benchmarks and transparency right down to the tax lot level" so that better after-tax decisions could be made.
