Investment carries the most weight
The Chant West ratings are based on six criteria: organisational strengths, investments, fees, insurance, administration and member services, that are weighted according to their relative importance. Investment carries the most weight (40%).
The investment analysis concentrates on the multi-manager options that are the defaults for most funds and so account for the majority of members. “We look closely at the fund’s governance regime, its asset consultant, any in-house resources and how its portfolios are constructed,” Chant says.
“Past performance is relevant but it only counts for a small portion of our assessment. Having said that, we can’t ignore the strong performance history of not-for-profit funds which, as a group, have outperformed master trusts over most periods during the past seven years.
“That’s mainly due to their greater exposure to unlisted assets, particularly direct property, infrastructure, private equity and hedge funds. The differences are quite marked. Industry funds have a strategic allocation to unlisted assets of about 25% versus 7% for master trusts, which place a greater premium on liquidity.
“In assessing funds, members need to clearly understand that there is this key difference between the two groups. And they should also be aware of the associated risks – for example, the risk (however small) of not being able to access your money when you need to (too many illiquid, unlisted assets) versus the risk of earning lower long-term returns (too few unlisted assets).”Table 3
shows that high level investment expertise is not confined to any particular type of fund, with nine not-for-profit funds and one commercial fund ranked in the top 10 for investment.