Good times with the Fundsters
Tourism Australia declares the winners of its "Best Jobs in the World" marketing crusade next month. The campaign is designed to promote working holidays in Australia and has drawn a heady 600,000 applications from almost 200 countries.
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.
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