AMP Capital chief investment officer Sean Henaghan said funds generally perform better when there is greater flexibility in terms of asset allocation.
“The problem with a lot of the current system though is that if you’re a balanced fund, the PDS defines your exposure to growth assets and it’s got to be 60 and 80 per cent, so you’re constrained by this supposed risk management,” said Mr Henaghan.
Mr Henaghan said sometimes these restrictions can make risk worse.
He believes funds need to move away from the process established in the 1980s by the industry, where funds defined their strategic allocation and then allocated risk and complexity budget and fee budget to sector silos to create multi-manager portfolios.
He said in many cases you don’t want strategic allocation, and the investment manager should be given more flexibility.
“You've got to have a process that’s really responsive and reactive and that has someone sitting over the top that can move that portfolio quite quickly,” said Mr Henaghan.
AMP Capital chief of investment strategy and chief economist Shane Oliver said while funds using the old system of using defined strategic allocation “may do the job in the long term,” in some periods the performance of these funds will suffer.
“You want to avoid big events down the track or take opportunities and you need to be looking ahead,” said Mr Oliver.
Mr Henaghan said funds need to be “far more dynamic, especially in a macro environment like we’ve got at the moment where things can happen”.
