Nearly two years after taking on the role of chief investment officer at CareSuper, Suzanne Branton is building out her team and settling in for the long haul.
Every workday morning at 9.00am, the A$13.1 billion ($10 billion) CareSuper investment team gathers for its daily meeting. The ritual is a legacy of chief investment officer Suzanne Branton’s years in the world of investment banking, although in her days as a young money manager at the Goldman Sachs-owned JBWere Asset Management, the morning meeting started at 7.00am.
“It was one of the challenging things I did very early in my career, and I think it taught me a lot, having to present to a couple of hundred people first thing in the morning,” Branton recalls.
Even though the CareSuper investment team numbers fewer than 10 people, the discipline still has enormous value.
“We are a fully fledged investment team and investment issues are the first topic of discussion every day,” Branton says. “Not in the context of something that happened last night…but [regarding] how our strategy is evolving.”
Team members talk about the managers they are meeting with and what they want from them.
“It’s a way to have all of those things known and monitored by the team…I’m not ever going to be splitting off sub-meetings. We deliver members a whole-of-fund return, so let’s have a whole-of-fund commitment to what it is we’re doing.”
Branton has recently implemented a program to deepen the integration of environmental, social and governance (ESG) risk management across the fund.
“The expansion of our ESG work has been about integrating the consideration of those factors more deeply into the research we’re doing on managers and their strategies as a whole, as we’re looking at them, and investigating them, and reviewing them,” she says.
Developing a cohesive, collaborative team with a shared investment philosophy has been her greatest achievement since she left her previous role as a senior investment manager at another Australian fund, Equip Super, to join CareSuper as CIO nearly two years ago, Branton says.
Investment team members each bring an area of specialisation but must make decisions according to a whole-of-portfolio approach.
“There’s no capital allocation to individual people. You can still have specialisation and specialist skills, as long as you don’t make investment decisions in a siloed way.”
At the time of writing, a ninth member of the CareSuper investment team was due to be announced, and the CIO was foreshadowing more hires in 2018.
CareSuper is a Melbourne-based public offer industry superannuation fund with origins in servicing clerical and administrative workers. Virtually the entire portfolio is managed externally and, especially in light of Branton’s previous experience running money directly, the question often arises whether CareSuper is set to join the growing roster of industry funds that have insourced part of their asset management.
The answer is no – at least not anytime soon.
“We do some things like cash and term deposits internally, but predominantly it’s all externally managed,” Branton says. “How that will go over time, we shall see. But at the moment, there’s no immediate plan to change from that.”
For a fund of CareSuper’s scale, outsourced investment management is the most efficient model, she argues.
“We’re not constrained in what we’re trying to achieve and what we do by what’s available to us. Probably because we are able to…invest in things that are niche, capacity constrained, opportunistic and concentrated. Because we’re able to both do and find all those things, the efficiencies that would come from managing some bulk assets internally aren’t immediate.”
The day may come, however, when Branton will have to consider the needs of a fund with much greater scale.
After all, when asked how long she plans to stay in her role, Branton answers: “A long time. It will take me to the box, I think…It gives me a great amount of pleasure and satisfaction to do what we do.”
Origins in economics
Branton began her career in what she describes as “the murky world” of economics, which she says has left her with a lingering “interest in all things macro”.
“I’ve always been a person that is particularly interested in trying to identify major turning points and when conditions are really changing in a sustained way, as opposed to the things that come and go on a month-to-month basis,” Branton says.
When asked if global markets are on the cusp of such a turning point as the US Federal Reserve’s interest rate tightening cycle gathers steam, Branton is circumspect.
“What I would say is these things never are clear at the time,” she says. “It does feel to me as though we’re at the tail end of an interest rate cycle where [they’ve] just continuously fallen over multiple years. It feels like that is most likely done and we’re coming into something else, where interest rates can go both up and down.”
The prospect of a return to more market volatility is something Branton would cautiously welcome.
“I’m always cautious about welcoming volatility; a part of me does but welcoming volatility is welcoming the potential for poorer outcomes for our members, which we never want,” she says. “But volatility that we can recover from, where the medium-term outlook is still constructive for our members – yes, that would be good.”
Risks and adjustments
While not an immediate worry, it is never far from Branton’s mind that the biggest risk to the CareSuper portfolio today is the level of interest rate sensitivity inherent across the investment program that has been built up over a decade of extraordinarily loose global monetary policy.
“It doesn’t look as though that is going to be tested by the long end at the moment,” she says. “If anything, yields just don’t seem [like they’re] going to move up very far. But the most comprehensive risk that I think about, that would affect the investment program as a whole, is really that interest rate sensitivity that is now embedded in a lot of the asset classes we invest in.”
And that’s despite the fund now having a low allocation to fixed income markets. Reducing that exposure was one of the first things Branton implemented when
she arrived at CareSuper two years ago.
Not only are many listed companies now in a position where their balance sheets are interest rate sensitive, but also the valuations in infrastructure, real estate and infrastructure markets are now typically more stretched and interest rate sensitive.
“The question in my mind is to what extent is the valuation of our investments and their ability to deliver return in the future dependent on a low-volume environment,” Branton says. “Mind you, there aren’t any particular signs that environment is about to change dramatically any time soon.”
One thing is for sure, the market outlook for the next 25 years looks different to the one in which the superannuation industry has been operating since Australia’s compulsory system was introduced in 1992.
It was around then that Branton started running superannuation money, and she suspects memories of working through a string of financial market crises over that time shape her approach, even if only subconsciously.
Early in her career as a money manager, the 1994 bond crash hit, followed by the Asian crisis of 1997, then came the dotcom bust in 2001, before the global financial crisis seven years later. They have all been formative experiences.
“I distinctly remember, as though it was yesterday, the bond crash in 1994,” Branton says. “Maybe that’s a help, maybe it’s a hindrance in some ways, to have such a long memory…But I think it makes you cautious and it helps [you] have a long-term perspective when you’ve worked through those sorts of events.”
Branton is now approaching opportunities in listed equity markets “with a great degree of caution”, but notes she is less negative on the outlook for shares than many.
“It will be challenging to get decent returns from here in just about anything, to be honest,” she says. “We’re going to need every single source of return we can possibly get.”
She is certain the answer lies in a disciplined approach to active management with a focus on net returns and portfolio diversification.
The fund has recently expanded its alternatives program. Like many of their peers, Branton and her team have been spending much time in recent months researching credit managers and absolute return-style managers.
“A lot of the credit work is orientated to a shorter duration, but it’s also about finding sources of return managed very actively,” she says.
The fund still maintains “an opportunistic private equity program” that focuses on looking for good deals, including secondary offers, mostly from US and European managers.
“It is more of a case-by-case thing as deals come up…We don’t feel compelled to be cornered into vintages or strategies that don’t appear to have strong return potential,” Branton says.
CareSuper’s allocation to alternatives, including infrastructure assets, now sits at about 30 per cent of the total portfolio.
The fund’s ‘home bias’ to Australian listed equity markets has been reduced under Branton’s watch since early 2015.
That’s partly due to the fact it makes sense to have a higher allocation to global shares to reflect the overall market structure, but it’s also a reflection of a subdued outlook for the domestic market.
To complement the highly active approach of the CareSuper strategy, the fund also has a program of downside protection.
“Across the investment program, everything is probably more active than the average,” Branton explains. “And our asset allocation is active as well. We’re up at one end of the active scale, and so we also focus a lot on downside protection. We deliberately build a defensive portfolio, not a neutral portfolio. So, as you would expect, we have a skewed performance profile that favours more difficult market conditions.”
In this way, the downside protection program is more fundamental than derivatives driven.
A focus on active and bespoke managers also means needing to be prepared to pay higher investment management fees, and that’s OK.
“Our members retire on net returns, they don’t retire on what fees they’ve saved,” Branton says. “For us, it’s about value for money. We are prepared to invest in more complex strategies and things that are capacity constrained, but we endeavour to do that very carefully and prudently, and with a great deal of consideration.”
Soon after she joined the fund, CareSuper upgraded its investment review committee to a fully fledged investment committee with delegated powers.
This change, with the support of a program of director education and development, has fostered a stronger investment governance framework.
“You could ask any of our directors would we invest in a particular manager or strategy and they’d be able to tell you straight away,” Branton says.
She credits chair Catherine ‘Cate’ Wood and chief executive Julie Lander for their longstanding support of trustee education. JANA is the fund’s asset consultant, with the account led by Steven Carew.
Managing these and other important relationships is a key part of the role for Branton, who believes investing is “part art, part science” and says one of her strengths is an ability to grapple with the intangibles.
“I’ve always been a big believer in character strengths and character traits, and the extent to which they frame the person’s work and what they do, and their career, and why they do what they do,” she says. “I think character traits are a really important part of people’s career and career development.”
And her defining character trait?
“Determination. I’m a very determined person.”
There is less overt sexism for her determined nature to contend with in the industry today, thankfully, than when she embarked on her career, but unconscious biases still feed into gendered expectations about how women are supposed to behave.
“I don’t settle for OK, or it’s all fine, or that’s acceptable. I don’t settle for that, and I never have,” Branton says. “But people expect you to settle. They do. This is my personal view. This is one of the things I don’t think has changed. People still expect that women are going to settle for what’s fine, or what’s OK, or what they’ve been delivered.”
Branton mostly shrugs it all off, but it still rattles to be perceived as difficult in circumstances where male CIOs behaving similarly are more likely to be characterised as “strong, decisive, good businessmen”.
Fund managers who take this tone in fee negotiations should expect pushback.
“I absolutely fight for every dollar,” Branton says. “Every dollar, I fight for. And I never settle. I never settle for anything less than what our members deserve.”