Retail Superannuation Management in Australia: Risk, Cost and Alpha

In this performance evaluation study, two questions are addressed. First, does Australia’s superannuation management industry deliver returns commensurate with the risk taken? Second, what is the relationship between cost (specifically, the management expense ratio) and performance? The answers from this study are as follows: as an industry, managers failed to achieve returns proportionate to the market portfolio for the period 1991 through 1999 on a risk-adjusted basis. The study provides evidence that an inverse relationship between cost and return exists, with funds levying the lowest management expense ratios delivering the highest within sample returns.