How can investment managers offer tax efficient funds to Canadian institutional investors?
Patrick Waters,
Four trends that make reducing investment tax drag increasingly important
SHARE
Pension schemes have become more international in their outlook, moving away from UK equity dominated portfolios and diversifying into global equities. But the impact of withholding tax on dividend income has not always been well understood.
The increased popularity of low-cost passive and smart beta funds makes investors pay greater attention to the performance drag of any charges or fees across all fund holdings. As institutional investors’ awareness grows, they are reviewing other costs, including the impact of withholding tax on equity performance.
The industry recognises that running a small multi-million DB fund is not efficient and is looking for ways to consolidate these funds to improve economies of scale. As funds merge, their management will focus on aspects such as enhancing governance and minimising the impact of tax drag.
Defined contribution schemes are now the most important form of occupational pension provision and assets under management are growing rapidly. Ensuring scheme members can access high-quality yet low-cost pensions is an important policy principal that has resulted in a management charge cap. Ensuring employees are not sacrificing performance to unnecessary withholding tax will drive companies and master trusts to consider more tax efficient structures.
Improving the returns from a fund by making it tax transparent has obvious benefits for institutional investors. These additional savings can provide a useful buffer during periods of underperformance and will bolster overall performance of the fund making it easier to meet funding goals. The reduction in tax drag is also an incentive for investment managers to use these structures as it is a simple way for them to boost the performance of the funds.
Find out more about tax efficient investing in our tax transparent funds report.
How can investment managers offer tax efficient funds to Canadian institutional investors?
Patrick Waters,
Why are Sovereign Wealth Funds still paying dividend withholding tax – despite being tax immune?
Kevin Duggan,