After-tax returns to drive significant industry change, says asset servicing solutions leader
Sydney, 16th February 2012 - Philip Hogan, Managing Director – Asia Pacific for DST Global Solutions, who chaired a panel on after-tax governance and regulation during the 15th annual Investment Administration Conference at Sydney’s Hilton Hotel today, said that, while appreciation of the benefits of reporting after-tax performance was increasing, the financial services industry remained largely focused on pre-tax returns.
But this could change as institutions seek differentiation in a competitive market. According to Hogan, trustees and custodians could benefit from greater focus on after-tax returns, while managers are expected to benefit from being able to target their investment products more precisely. However, change could incur significant costs and shifts in responsibilities throughout the investment industry decision-making process.
“Focus on after-tax returns will drive substantial industry change. Trustees and investment managers will need to consider how to take advantage of the tax position of a fund before asset allocation and trading decisions are made.
“Quality of information will be key. While after-tax information may already be available to trustees where multi-manager portfolios are centrally managed, some organisations will need comprehensive and better quality data, as the tax environment of investors and investments will need to be understood. Trustees may also need to become more actively involved in tax strategy and the management of funds’ underlying assets.”
Additional to the centralising of portfolio management activities and improving the quality of data, institutions should also plan to provide information to key decision-makers faster.
“How information is delivered will be critical as fund managers will need details of the tax implications of portfolio trading to avoid losing after-tax benefits. Quality assurance and delivery processes may need to change to ensure asset allocation and trading staff are provided with timely tax information to influence their trading decisions,” said Hogan.
“The availability of after-tax benchmarks is assisting adoption of after-tax reporting, and more fund managers will exploit the opportunities for differentiation that they offer. We anticipate that, because most investors are not in a tax-free environment, demand for tailored after-tax products will increase, and investment managers which lead the way will benefit.”
DST Global Solutions’ award winning investment accounting platform, HiPortfolio®, provides tax processing services for more than 70 per cent of custodians and fund managers in Australia and New Zealand. HiPortfolio is the market leader for tax processing, providing the broadest tax coverage of any investment accounting system in Australia including comprehensive Taxation on Financial Arrangements (TOFA) support. All tax coverage is included within the core investment accounting system designed to increase efficiency and minimise risk. DST Global Solutions has more than 20 years of experience in the Australian market and more than 40 clients in Australia and New Zealand, including some of the world’s largest asset managers and custodians.