The CIOs of two of Australia’s largest asset owners, Aware Super and UniSuper are looking to enhance their competitive advantage in an increasingly concentrated superannuation market.
The chief investment officers of two of Australia’s largest super funds have contrasting strategies to tackle regulation, investment strategy and performance in 2022.
Aware Super – the result of a merger of First State, VicSuper and WA Super – aims to continue growing through mergers which will create complexity for its investment management team, says CIO Damian Graham.
The fund engaged consultancy McKinsey to develop a five-year strategy which found some complexity was a competitive advantage in a crowded market, Graham says.
“The way we’re investing – internalisation as part of the portfolio, infrastructure and property, an internal macro strategy-style offering – those sorts of things are slightly more at the complex end but that’s a better way to apply risk where you want to be different,’’ he says.
The fund is investing in greenfield infrastructure and social housing, less in retail, with its property portfolio makeup of 35 per cent industrial, 30 per cent residential and less than 12 per cent in retail and some in office.
“That’s an active position for us. Do you think we can add value? Yes we’re happy to build greenfields assets rather than buy,’’ he says.
“ What we’re trying to do is reduce where we don’t want to be different or we don’t have a conviction – we are trying to close down those areas.”
Aware’s aim is to grow from A$160 billion to A$250 billion funds under management in four years, energized by mergers, with private market investment managers around the world in different locations, Graham says.
Aware expects to double its portfolio manager workforce to 200 as it increases its areas of excellence around real income and growth assets and supporting teams on property infrastructure, cash and trading.
Meanwhile, award-winning fund UniSuper has inhouse management experience that is a competitive point of difference, says its CIO John Pearce.
With industry heavyweights Chris Cuffe, Mark Armour and Felicity Gates among its investment committee, the fund runs a significant inhouse asset management business, Pearce says.
“It’s not simply a case of a board saying: ’we better pay higher remuneration and get the best people and away we go’. It’s governance structures and governance mindset that’s what’s really important,’’ Pearce says.
The fund has more than 450,000 members and A$100 billion in funds under management, while significant fallout expected for its university sector members was not as bad as predicted. Opening up to the public this year meant inflows have been “really strong”, Pearce says.
Yet to announce a merger, UniSuper is talking to seven funds and in due diligence with two, Pearce says.
On a macroeconomic view, Pearce says bonds have become irrelevant for funds to match pension liabilities.
“If you started matching liability you would guarantee insolvency down the track,’’ Pearce says.
“There was no other option but to risk it. That’s what we’ve done and that’s what the central banks want us to do – to take more risk.”
In terms of digital and cryptocurrency strategies, Pearce says there is no “crypto seeping into UniSuper portfolios”.
“We’ve now got a $3 trillion market with no adult supervision and its definitely in need of that. The fundamental basis of crypto is flawed,’’ Pearce says.
However blockchain, the basis of cryptocurrencies, was “the real deal” and a reason why UniSuper is the largest shareholder in the ASX, a blockchain pioneer, Pearce says.
The direction of inflation is also front of mind at UniSuper.
“The questions that investment managers have to address will be the bond market and the central banks’ response to different scenarios. That’s the debate we’re having at UniSuper,” Pearce says.
“I find it hard, being an old timer that’s lived through inflationary periods, to hold bonds at two per cent and inflation’s travelling at four. What I’m saying is we’ll be a lot wiser by the end of the second quarter next year, but at the moment we’re playing things from the short side.”