The A$38 billion ($40bn) AustralianSuper fund has made an active decision not to engage in formal strategic rebalancing, instead looking to a dynamic allocation of assets, chief investment officer, Mark Delaney (pictured), explains.
The fund looks at its asset allocation every month, forced to make an active decision just based on cashflow. Its contributions (because of the mandatory nature of the Australian pension system) are $266 million a month, about 10 per cent a year.
“So we can move the portfolio just by allocating cashflow,” chief investment officer, Mark Delaney, says. “But we don’t believe in long-term strategic asset allocation set-and-forget.”
The fund conducts a strategic asset allocation review each year, which is about setting a target on where it wants to get to at the end of the financial year (June year-end).
That was set at 54 per cent in listed equities but the dynamic nature of the allocations is reflected in the fact that has now increased to 57 per cent based on the outlook for equities improving.
“We are about building long-run retirement savings, and can’t do that without growth assets. How we control volatility is the thing we focus on. We have a lot of diversification and unlisted is a big part of that. We also try to actively manage our equities exposure to reduce it in periods of higher risk/volatility in markets.”
Australian Super was an early adopter of infrastructure investing, and now also has a significant exposure to the asset class offshore.
“These businesses are large-scale, low beta, very steady business and revenue flows, and low-growth. They are often long-term contractual arrangements with high revenue and don’t require management ability to change the outcome of the business. The only risk you have is paying too much or over gearing, which has been the experience of many investors.”
AustralianSuper has some specific characteristics it screens for in infrastructure:
- A strong competitive position
- Good physical infrastructure that does not need a lot of money
- Volume growth
- Contracted rather than price-taking revenue streams
- Affordable price and not excessive gearing
By their nature, Delaney says infrastructure characteristics are more palatable in a developed than an emerging market. This was supported by a study on China property and infrastructure the fund did about 18 months ago.
“Prices are not particularly cheap. You are betting on the China growth story and we thought we would play that through listed assets,” he says.
Expansion into Asia is one of the fund’s strategic investment themes.
It has separate emerging markets mandates, and Asia makes up about half of this exposure, as well as incorporating it into global equities. Delaney says he is looking to hire an Asian strategist, who will bring a macro overview to the fund, with individual asset class skills to supplement that.
It has undergone some recent staff changes, with the fund recently hiring a new head of infrastructure and is close to filling the head of equities position.
There are currently 30 internal investment staff but Delaney is “rethinking” the fund’s resourcing.
“As the fund has grown in the past 10 years the amount and type of resourcing has been changing. We are looking at the framework we need for if we double in size in the next five years. What’s the framework we need if we are an $80 billion fund. It takes a few years to get people to be adding value to the portfolio.”
AustralianSuper has 16 investment options, and the balanced fund is the default.
The strategic asset allocation of the balanced option is:
Australian shares 45 per cent; international shares 20 per cent; direct property 12 per cent; private equity 4 per cent; fixed interest 11 per cent; infrastructure 14 per cent; absolute return strategies 0 per cent; and cash 5 per cent.