Annika Bradley, Senior Investment Analyst, Policy and Governance
Fees are always a hot topic of debate. And we expect the new fee disclosure legislation1, set to take effect early next year, will fuel yet another debate on the merits of lower fees. But are lower fees always better?
QSuper offers some of the lowest fees in Australia2. We understand that investment returns are not easy to come by (especially in the current low return environment) and we don’t want to give away any of your precious returns to excessive or unnecessary fees. But our low fee levels are not a result of pursuing the cheapest possible investments we can find. Instead, we’ve applied a thoughtful process to get the best bang for your fee buck.
We believe you get what you pay for. And in some markets, we think there is very little point in paying higher fees as the rewards available are limited. For example, in equities markets, we don’t believe that active management or alpha can reliably produce consistently higher returns and as a result we generally pursue passive investment management in public markets. This comes at a pretty cheap price. But, in private markets, where information is less readily available and assets are limited to a smaller number of investors (by virtue of their size), we consider that paying higher fees (and often performance or incentive fees) can make sense.
To be clear, given QSuper’s size (approximately $62 billion3of funds under management) we can negotiate pretty attractive fees in both public and private markets. We’ve used our scale to build a selective number of trusted partnerships across the asset classes (from equities to infrastructure).
Exposure to flagship assets such as Heathrow Airport or Robina Shopping Centre comes at a cost. For example, management and often incentive (or performance) fees are payable to our partners. Our partners need to pay their staff and this largely accounts for the management fee. We design the performance fees such that our partners get paid an additional fee only when they’ve exceeded our expectations. If they deliver our members exceptional performance we think a bonus scheme can be appropriate. We also take care to hold our investments in an optimal structure from a governance perspective which often results in administrative and operating costs. And lastly, at the point we are buying or selling an asset there are often transaction costs to be paid – ranging from stamp duty to due diligence costs.
So while we do offer some of the lowest fees in Australia we aren’t seeking a simple ‘cheap and cheerful’ strategy. Instead, we are in pursuing an investment strategy that represents the best value for money for our members.
1.The Corporations Act 2001 was modified in 2014 to clarify certain fee and cost disclosure requirements for Product Disclosure Statements and periodic statements. The modified requirements set out in the legislation will come into effect from1 February 2017.
2. Past performance is not a reliable indicator of future performance. For the QSuper’s Balanced Investment option. SuperRatings Fundamentals report as at February 2016. This finding is based on the industry average measures for $50,000 invested in the Balanced investment option using the actual net returns and fees from the current product disclosure statement when we printed the report. It doesn’t include the cost of insurance. SuperRatings does not issue, sell, guarantee or underwrite this product. When making decisions about the product you should consider things like fees, the services and benefits offered and long-term performance.
3. Funds under management at 28 September 2016.
The views of the author and those who provide the responses to comments posted on this blog are not necessarily the views of the QSuper Board. We’ve put this information together as general information only and you should get professional advice before relying on this information.
Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.
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Annika Bradley, Portfolio Manager
Annika is a Portfolio Manager with the Funds Management team where her responsibilities include implementing investment policy decisions, structuring potential investments and managing a portfolio of external investment managers.