Week 7 Super Tutorial - differences b Investment...

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Week 7 Super Tutorial Coleman paper: Non for profit funds v Retail fund Performance measures Sharpe ratio Rate of return Jensen alpha Volatility Expense ratio Agency costs are higher in retail funds than NFP funds and thus lead to outperformance. NPF funds require representation of members on the board-reduce agency cost. Assumptions used in the article o All funds had same asset allocation o Performance on retail funds may be influenced by member directed investments o Limitations on retail fund investment behaviour 1. A. NFP funds performed better on all of the performance measures. The argument put forth was agency costs due to customer churn, related party transactions. Retail funds have conflicting interests-e.g. make a return for
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their shareholders. Also NFP funds may be smaller or members all come from similar background. B. 2. Ellis paper confirms that NFP funds perform better than retail funds. 4 reasons why? a. Asset allocation-doesn’t play significant role in performance
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Unformatted text preview: differences b. Investment performance relative to benchmark-(investment manager skill) played little part in the differences in fund performance c. Expenses-main reason(s) for outperformance (explicit or embedded) d. Taxes-main reason for outperformance (gross return – net return) Created a benchmark investment option to compare performance of NFP and retail funds. 3. People don’t care, people are short sighted and people are not educated enough. The creation of the default option cultivates a culture of not caring enough about super. Supply side issues-complexity, agency costs, exit costs, lack of comparability and transparency to actively compare across funds. Supernomics: Industry Super competition • Factors driving competition o Consumer behaviour 3% switch funds each year Exit fees o Searching and switching fees o Remuneration of financial advice...
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This note was uploaded on 10/04/2011 for the course ACCT 3708 taught by Professor - during the Three '11 term at University of New South Wales.

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Week 7 Super Tutorial - differences b Investment...

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