Aussie fund makes big recovery

Jim Christensen, the investments boss of one of Australia’s biggest corporate superannuation funds, Telstra Super, is close to fully rebuilding his team after a chain of key departures in the past eight months, and has viewed the task as an opportunity to reshape the fund’s alternatives program and consider the potential for further internal management. Simon Mumme reports.

In September last year, the stable investment team at the A$10 billion ($9.3 billion) Telstra Super was rocked by the sudden exit of chief investment officer Steve Merlicek after an 18-year tenure with the fund. Soon afterwards, he recruited Telstra’s head of domestic equities to IOOF Holdings, his new funds manager employer. Next, Telstra lost its head of alternatives to the consulting arm of Russell Investments in March.

Hired in December, Christensen was immediately tasked with boosting Telstra’s ranks. He rapidly hired new domestic equities and property heads, and last week tapped the fund’s primary asset consultant, JANA Investment Advisers, to recruit a private equity portfolio manager. He is expected to announce Telstra’s new hedge fund portfolio manager in coming days, which, “at this stage, would give me the full complement of staff,” Christensen says.

But this process has not just been a recruitment drive. Christensen has been thinking about the fund’s long-term strategy, and which skills are required to implement it successfully.

“We’re thinking strategically around what we should do – but first things first, there have been staff departures. We want to get the team firing across all of the assets that we manage in the portfolio.

“It’s a very good opportunity to shape the team. It’s been stable for a long time. But now we have the opportunity to look at the skills that we want to bring in.”

His past experience leading the active management division of the $60.3 billion Queensland Investment Corporation, an Australian state government-owned manager, is informing his plans for Telstra Super.

“A mix of internal and external [management] has been my background. We’re looking at hires with the capability to maintain a reasonable amount of internal management, and will then think strategically down the track about what we want to do with that allocation.”

About 10 per cent of Telstra Super’s overall portfolio is managed internally. Much of these assets are domestic equities, listed property and fixed income, and are separated into passive and active exposures.

“We got between $9 billion and $10 billion, which means that in a number of asset classes there is enough funds under management to have reasonable internal capabilities.

“A mix of internal and external means you have a slightly larger headcount, but better understanding and coverage across all of your assets.”

Ambitions to manage more money internally will also be supported by the experience gained by John Eliopolous, the fund’s head of domestic equities, when he ran investments for the Myer family office, a private investment firm, for nine years before joining Telstra Super.   

Christensen said a “rolling review” of the fund’s investments, initiated when JANA became the fund’s consultant in early 2009, helped familiarise incoming staff with the fund’s portfolios and hone existing strategies.

“There is some tweaking, some multi-year transitions, and we’re refining the strategies as we get new people.”

The new private equity and hedge fund portfolio managers will be focusing on making direct allocations to managers, rather than investing in fund-of-funds, implementing a strategic shift “that had been going on for a number of years” under the previous watch.

This commitment to making direct investments is illustrated by the fund’s delay in reallocating a $148.5 million mandate redeemed from the BT Global Return hedge fund-of-funds, which imploded in 2008.

“We’re thinking long and hard about the hedge fund program, and are in discussions with stakeholders. The outcome of that will determine the reallocation and how we shape the hedge fund program, and how big it will be.”

For now, the exposure achieved by the mandate is being replicated by a mix of global equity, cash and fixed income derivatives until a decision is made about how to reallocate the capital.