Many investment funds might be quite surprised to discover just how much drips away through operational inefficiencies and missed opportunities to maximise investment returns.
Imagine that your water bill was rising every quarter. You would look for a possible leak and quite possibly you would need to call in an expert, if not to locate it, at least to rectify it.
Yet, many large investment funds have leaks in the form of operational costs, preventing additional returns being passed on to their beneficiaries. But funds don’t get a quarterly bill that alerts them there might even be a problem.
Securing good rates for foreign exchange transactions, and generating a return on cash investments held by the custodian are just two of many potential leakage points. There’s a mind-boggling array of others.
With relatively little cost and effort, any leakages can be pinpointed and plugged, while processes can be streamlined to save money. Mercer believes that a typical growth fund can add up to a 1% p.a. of additional returns with little or no additional cost and only marginal increase in risk, by focusing on maximising return and achieving operational efficiency. In a low-return environment, that can be a significant boost to investment returns and the overall fund value. That means a $10 billion investment fund could add up to $100 million each year by taking stock of various initiatives.