AustralianSuper aims for beta returns after big cuts to active equities

The A$28billion (US$20 billion) AustralianSuper terminated several mandates with active equities managers last week and directed most of the freed-up capital to passive exposures bringing its passive management in equities to more than 50 per cent, in an effort to simplify its portfolio by trimming excess managers.

The cuts accounted for approximately 25 per cent of AustralianSuper’s total equity portfolio, and were made to reduce overlap and duplication among managers that did not substantially improve performance, chief investment officer of AustralianSuper, Mark Delaney, said.

“We had a long tail of managers with small mandates in the portfolio, and thought that these weren’t big enough to materially impact the portfolio,” Delaney said.

“We had too large a list of managers for their ability to impact on the portfolio and add value.”

Delaney would not confirm the amount of money involved, but it is understood that 20 out of 30 mandates with active equity managers may have been culled.

The cuts impacted small-cap, mid-cap and large-cap managers.

While the remaining active managers welcomed bigger mandates as capital was redistributed, the real beneficiaries were passive managers like State Street Global Advisors, who enjoyed a flood of new money.

Delaney said that 50 per cent of the fund’s exposure to equities was now achieved through passive managers – up from 25 per cent – and that this exposure was unlikely to be managed internally now or in the future.

He said the shift towards beta would not limit the fund’s ability to benefit from active opportunities expected to be among the ruins of the bear market.

“We’ve still got a hefty component [of active managers and continue to manage it dynamically.”

Even though the boost to passive managers had reduced risk across the equities portfolios, the fund had not reallocated this risk.

“Resources, risk budget, fees: now that we have less mandates to monitor it gives us the scope to be more active elsewhere,” Delaney said.

Delaney emphasised that the terminations were made to simplify the portfolio and did not reflect the performance of the affected managers.

“No manager has been terminated for poor performance – it’s more to do with portfolio considerations.”

He said the accrual of excess managers began when AustralianSuper was formed in 2006 by the merger between the Superannuation Trust of Australia and Australian Retirement Fund, and the new entity absorbed most of its predecessors’ active equity mandates.

AustralianSuper added to this number in subsequent years and gradually built “an unwieldy list” that prompted the fund and its consultants to review the portfolio.

This culminated in written communication to managers last week informing them that their mandates were being withdrawn.