In its response to the Financial System Inquiry (FSI) interim report, KPMG said there were opportunities to “continue improving operational efficiency within the Australian superannuation system”.
The FSI interim report noted that operating costs and fees in the Australian system “appear to be high by international standards”.
The benefit of regulatory reforms such as SuperStream will be realised in the future, according to KPMG – but in the meantime, super funds should be concentrating on increased competition and member engagement.
One of the key initiatives being considered by industry participants to improve efficiency is the internalisation of investment management activities, said the submission.
“Funds indicate that reducing investment costs associated with investment manager fees, including performance-based fees, is a key driver in establishing in-house investment teams,” KPMG said.
The submission cited a study in the Rotman International Journal of Pension Management that indicates “funds with more internal management performed better than funds with less”.
Rotman found that for every 10 per cent increase in funds managed internally, there was an increase of 3.6 basis points in net value added, “driven largely by the lower costs attributed to internal management”, said the submission.
“We believe the development of these in-house operations will assist in improving efficiency, providing they are supported by appropriate investment governance and operational frameworks.
“These frameworks should allow the trustee and the management to monitor and manage the performance, risk and efficiency of these in-house investment operations,” the KPMG submission said.
