Vanguard Australia super fund update (updated)

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asset_chaos
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Vanguard Australia super fund update (updated)

Post by asset_chaos »

edit: see below for new update on Vanguard Australia super fund licence grant

Thinking that Vanguard AU might have launched its superannuation (tax-advantaged retirement) fund at the start of the new fiscal year, I searched. Vanguard hasn't launched, but a 3 June 2020 article in the Australian Financial Review1 came up. In the article Vanguard denies their super offering is delayed; they started in November 2019. They've given up $100 billion in investment mandates from other super funds and have hired 100 people to roll out their super. The head of Vanguard Australia super, Michael Lovett, said
it is confident of launching by the end of the calendar year.
That's still a ways away, and surprising to me Lovett also said,
Vanguard Australia was yet to be granted a registerable superannuation entity (RSE) licence from the Australian Prudential Regulation Authority.
That seems like a long time for a big global investment manager to not be able to satisfy the Australian authorities to grant them a license to operate a superannuation fund.

On the prospective cost of Vanguard's super, Lovett said that we
should not assume the product would be the nation’s cheapest at launch.

“We are starting from scratch,” he said. “We don’t have the scale to lower the cost all the way to where it probably ends up in the long term.
That seems to be standard Vanguard: we charge what it costs to run the fund; expense ratios will lower as assets grow. And in what must qualify as an unsurprising statement---at least to Bogleheads---he said the initial investment offerings would be indexed.

And in something that I'm not sure Vanguard's ever done before, Lovett says they're open to buying existing super funds:
In its bid to grow quickly, Mr Lovett said Vanguard was open to mergers and acquisitions of other funds
As there are more than a few badly managed and costly super funds that should be put out of their investors' misery, maybe Vanguard taking them over would be a good thing. I suspect there would be a lot of competition from big industry funds to take over the laggards.

Ah well, we still wait to see what Vanguard Australia will do about launching a superannuation fund.

1I think the AFR is paywalled, but I find if you refresh the page and hit esc quickly enough that prevents the overlay from blanking out the article.
Last edited by asset_chaos on Thu Aug 25, 2022 8:26 pm, edited 1 time in total.
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crinkles2
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Re: Vanguard Australia super fund update

Post by crinkles2 »

At this rate, I'm not sure it will ever happen. Pretty disappointing from Vanguard.
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Re: Vanguard Australia super fund update

Post by pseudoiterative »

asset_chaos wrote: Sun Jul 03, 2022 5:25 am As there are more than a few badly managed and costly super funds that should be put out of their investors' misery, maybe Vanguard taking them over would be a good thing. I suspect there would be a lot of competition from big industry funds to take over the laggards.
On another hand, I don't think it is necessary for Vanguard to participate in the australian superannuation market in order for australians to have access to vanguard-style low-fee passive indexed investments in retirement accounts.

Some of the existing big industry superannuation funds offer "indexed" investment options that are relatively low fee. Hesta's "indexed balanced growth" costs around $65 + 0.22% AUM, Hostplus' "indexed balanced" costs $110 + 0.05% AUM, or 0.10% AUM if you wanted a 100% international (i.e. world ex australia) equity portfolio portfolio. Sure, who wouldn't want a few more basis points discount, but 0.05% -- 0.22% AUM fees is still pretty good compared to many terrible australian super products that charge around 1% AUM or more.
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Re: Vanguard Australia super fund update

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All true, but I think one important difference is that Vanguard's default fund will be low-ish cost and indexed. While a handful of super fund complexes (you've named a couple; Sunsuper and Aware are a couple more) have low cost index options, their default funds are active and cost several multiples of the optional index funds. Most people don't think about it and take the default. A truly low cost default fund, if it catches on with employers, may drive other super funds to make their default funds lower cost.

Not to mention that people are in some terrible super funds. In this post I graphed the APRA data on super fund performance and cost. 16% of default funds fail APRA's criteria (see post for details and links). And 90% of the default funds underperformed a balanced index portfolio (using the actual costs that I bear at Aware super). There are a lot of mediocre to downright bad super funds out there, and even the lowest cost good default fund costs double the indexed fund.

So, I do hope Vanguard's entry---if it ever happens---will eventually put cost pressure on the entire super industry. As I already have chosen the lower cost indexed options for my super, you are right, Vanguard is not a personal need for me, but I think of it as an altruistic need: low cost super would be better for people in general.
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Re: Vanguard Australia super fund update

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asset_chaos wrote: Mon Jul 04, 2022 1:30 am their default funds are active and cost several multiples of the optional index funds. Most people don't think about it and take the default. A truly low cost default fund, if it catches on with employers, may drive other super funds to make their default funds lower cost.
you make a great point. more competition wouldn't hurt, but that in itself might not suffice to switch the default product from being a high fee product to a low fee product. i reckon that one might require some more activity from the regulator.

on another hand, if i was responsible for one of the higher fee products, i might argue that some products with higher expenses have access to unlisted investment opportunities with potentially greater returns than those available on the market through low cost passive indexing, and that even after active management fees and other expenses that my fund with access to unlisted investment opportunties might be expected to produce a better outcome for my clients than passive indexed funds. maybe this could actually be true, or maybe not, but either way i could genuinely believe it.

in some slightly more ideal world world there could be independent academic studies of what seems to work and what doesn't, and the regulator might force funds to offer an evidence-backed aligned-with-research low-cost product as their default option. although that could also serve to impede future innovation, for good and for ill.
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Re: Vanguard Australia super fund update

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pseudoiterative wrote: Mon Jul 04, 2022 1:48 am you make a great point. more competition wouldn't hurt, but that in itself might not suffice to switch the default product from being a high fee product to a low fee product. i reckon that one might require some more activity from the regulator.
I reckon you're right.
on another hand, if i was responsible for one of the higher fee products, i might argue that some products with higher expenses have access to unlisted investment opportunities with potentially greater returns than those available on the market through low cost passive indexing, and that even after active management fees and other expenses that my fund with access to unlisted investment opportunties might be expected to produce a better outcome for my clients than passive indexed funds. maybe this could actually be true, or maybe not, but either way i could genuinely believe it.
If that mattered, we don't have to listen to a self-serving argument from a high cost super fund; it would show up in the APRA data. Besides, fund expenses don't correlate to access to good unlisted investments; it's size of the fund, it's total amount of money a fund is willing to put into unlisted investments. It's the lake woebegone effect: not all the funds can get access to the best VC, private equity, infrastructure, or real estate deals. And that's presupposing those deals move the needle sufficiently after their higher costs.
in some slightly more ideal world world there could be independent academic studies of what seems to work and what doesn't, and the regulator might force funds to offer an evidence-backed aligned-with-research low-cost product as their default option. although that could also serve to impede future innovation, for good and for ill.
I think the research is pretty clear from 2 decades of funds trying to emulate the Yale endowment model that you either buy access to the absolute best managers in these unlisted areas or you fail. And the reason seems to be that there are only a finite amount of deals that turn out to be sufficiently worthwhile. At least that was Vanguard's research conclusion when they launched their own institutional private equity fund in the US a year or so ago.
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Re: Vanguard Australia super fund update

Post by pseudoiterative »

asset_chaos wrote: Mon Jul 04, 2022 9:58 pm I think the research is pretty clear from 2 decades of funds trying to emulate the Yale endowment model that you either buy access to the absolute best managers in these unlisted areas or you fail. And the reason seems to be that there are only a finite amount of deals that turn out to be sufficiently worthwhile. At least that was Vanguard's research conclusion when they launched their own institutional private equity fund in the US a year or so ago.
that's interesting, thank you for sharing this.
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Re: Vanguard Australia super fund update

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Email hit my inbox today with an update on Vanguard super. Full text below, but major announcement is that APRA has issued Vanguard a licence to operate a super fund.
We're delighted to be able to share with you that the Australian Prudential Regulation Authority (APRA) has formally issued Vanguard Super Pty Ltd, the trustee of Vanguard Super, with our Registrable Superannuation Entity (RSE) licence.

That's our green light to proceed towards launching Vanguard Super in the coming months.

There's still more to be done before then, but we're on track to open our offer to members by the end of the year.
Interested to see what they come out with.
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Re: Vanguard Australia super fund update (updated)

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I've decided to simply use STAKE SMSF and use US ETF's from now on.
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Re: Vanguard Australia super fund update (updated)

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Even if relatively low cost for an SMSF provider, the approx $1300 a year in fixed fees and 0.7% fee on FX listed by Stake are still a little steep for most people. It's the usual trouble with SMSFs: just the fixed fees make it unjustifiable until one's super balance is high. To be cost equivalent to, say, the 33 bp cost of the index fund options at Aware super, a Stake SMSF needs to be larger than $400k. Sure, that'll work for some people, but for many it won't.
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Re: Vanguard Australia super fund update (updated)

Post by Hockey Monkey »

crinkles2 wrote: Sat Sep 10, 2022 11:20 pm I've decided to simply use STAKE SMSF and use US ETF's from now on.
Are there particular US ETFs you want to access that you cannot get equivalents on the ASX?

Personally I’d be using IBKR if I wanted to access international exchanges to save the ~1% FX from Stake

https://passiveinvestingaustralia.com/o ... omparison/
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Re: Vanguard Australia super fund update (updated)

Post by crinkles2 »

Yeah, I'll just stick with ASX listed ETFs. Too many issues with US based ETFS.
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