Good times with the Fundsters
It has now come down to 18 finalists vying for six jobs, which include Taste Master, Lifestyle Photographer and Chief Funster.
The responsibilities of the Chief Funster are to attend parties and tweet about it. Tourism Australia is offering a $100,000 salary for the successful applicant.
No doubt this is an alluring brief for the Gen Y demographic, but we can think of a far cushier post: one every bit as carefree, yet far more lavishly remunerated.
In case you have not guessed it by now, the best job in the world, without peer, is the job of Australian fund manager.
The Fundster, you could say, makes being the Funster look like a tough grind.
When you sit on a big bag of other people's money, as the Fundster does, you do not require a personality, like a Funster does. Stockbrokers will still fawn about, competing for the privilege of affixing the olive to the toothpick in your martini. You will soon grow weary of the city's finest nosheries.
And however hopeless is your fund's performance, you will still be paid the same, which is too much: millions in some cases, even while fund returns fall. You only have to beat the benchmark - rank one place better than the middle of the pack - and you get your performance commissions.
And all the while, the government-mandated wads of cash keep spilling into your coffers from the salaries and wages of working women and men around the country.
Most Fundsters, it should be said, are decent people who take their job seriously. The point is, they don't have to. Their incentive is to shelter in the pack, hugging that three-month performance benchmark, riding that gravy train.
Simply not owning BHP, or being below market weight in the banks, can wreck your three-month returns. Easier to stick with the pack. In Fundsterland, the marginal cost of a good idea is zero.
Although there is a bonus for the "success" of beating the average, there is zero penalty for failure.
Against the daily onslaught of glossy marketing and glittering TV ads, there is the odd reminder of reality. Make that a twin reality: one, that fund returns barely match the performance of bank deposits over the long term; and two, actively managed funds do no better than passively managed funds.
There were two reminders in recent days. We have salvaged them from the deeps of the ocean of spin.
The first is a piece in the Harvard Business Review titled "Just How Useless Is the Asset Management Industry?"
The findings, which we have linked online, are, to distil, useless.
"After costs, actively managed mutual funds trail the market (since the 1960s) ... Yet while passively managed, much-lower-cost index funds have been available since 1976 ... most investors still put most of their money in the hands of active managers."
It is the same deal here. Fees have fallen, though they remain way out of kilter with where they should be (given economies of scale in a trillion-dollar supermarket).
The Harvard authors found the "major inefficiency in financial markets today involves the market for investment advice and poses the question of why investors continue to pay fees for asset management services that are so high. It is hard to think of any other service that is priced at such a high proportion of value".
Has the asset-management industry any economic justification for "being as big and rich as it is"? Probably not.
Things are worse here. The mandatory super regime distorts competition in performance and management fees even further. It sharpens the bias towards active managers.
The irony of the slower economy is that things should get better. In good times, people ignore fees and commissions. In bad times, they come into focus. In what are likely to be years of lower average returns, the market will be reticent to cough up excessive fees simply to see the benchmark replicated.
The second reminder of excess and underperformance came the other day with the biannual Morningstar Global Fund Investor Experience Report, which awarded Australia a C+ ranking, behind the likes of Thailand, Spain, China and India.
"Australia has major problems with disclosure," says the report, which notes high tax as the other problem issue. "Critically, investors do not have access to the very basic item of portfolio holdings. Australia is the last country in this survey without any form of portfolio disclosure presently or in proposed regulations."
In other words, we stump up all these fees and they don't even tell us what the blazes they are spending our money on - let alone provide adequate disclosure about the teeming middlemen, the celebrity salaries and the hidden costs.
If there were any such thing as truth in advertising, they would have names like "the Give Us Yer Money And We'll Give You Some Back Fund".
If fund holdings of ASX companies were not hiding so often behind nominees, it would be a useful exercise to evaluate the concentration in the system.
As the big banks control the bulk of Australia's super, it is this same handful of players, paradoxically underpinned by the taxpayer, which also controls the share registers of the ASX top 200 companies - including each other. Small world.
Frequently Asked Questions about this Article…
Tourism Australia's "Best Jobs in the World" campaign attracted about 600,000 applications from almost 200 countries. It was narrowed to 18 finalists competing for six roles, such as Taste Master, Lifestyle Photographer and the Chief Funster — the latter expected to attend parties and tweet about them and advertised with a $100,000 salary.
The article argues that being a fund manager (a "Fundster") can be extremely lucrative and comfortable because they sit on large pools of other people's money, earn large salaries and performance commissions (sometimes millions), and often face little penalty for mediocre performance as long as they beat short-term benchmarks.
Short-term benchmarks (for example three‑month performance measures) encourage fund managers to "shelter in the pack" — stick close to peers to avoid underperforming. That discourages taking independent or contrarian investment ideas, because deviating from big holdings like BHP or the banks can hurt short-term returns.
According to the article and a cited Harvard Business Review piece, after costs actively managed mutual funds typically trail the market. Passive, low‑cost index funds have been available for decades and, net of fees, most investors would have been better off in many cases with passive funds.
The article relays criticism that the asset‑management industry charges fees that are high relative to the value delivered. Harvard authors called this a major market inefficiency, and the piece notes that while fees have fallen they remain out of line with economies of scale — especially given the mandatory superannuation system that funnels money to managers.
The Morningstar biannual report gave Australia a C+ ranking, placing it behind countries like Thailand, Spain, China and India. The report singled out serious problems with disclosure and high tax, noting that Australian investors lack access to basic portfolio holdings information.
The article highlights that many Australian funds do not provide basic portfolio holdings disclosure, hide holdings behind nominee structures, and can obscure middlemen, celebrity salaries and hidden costs. It also notes concentration risk because a handful of big banks control much of Australia's super and significant ASX top‑200 share registers.
The article's takeaways are: long‑term returns from many actively managed funds barely match simple alternatives (like bank deposit performance after costs), passive index funds are much lower cost and often perform as well or better after fees, and investors should be aware of high fees, poor disclosure and concentration in the system when choosing funds.
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