Endowments seek to provide “inter-generational equity”, in which they spend as much on the current student corpus as the next, Kennedy says. In times of short-term pain, the constituents of endowments are more engaged and understanding, and generally more forgiving, than super fund members. “Because they don’t have members they can take a longer-term view than Australian super funds, which is a nice luxury to have,” Chessell of Access Capital Advisers says. “Our clients operate in a market where there is a short-term fetish: people pay lip-service to long-term returns but everyone gets excited by short-term results.” For super funds to invest on a longer time horizon, say 20 years or more, is a pipedream: “At the trustee level, all of our clients focus on the three-to-five year timeframe,” Chessell says.

Holzberger of QIC says short-term underperformance an Achille’s heel for trustees, who fully understand the case for championing long-term strategies. “Every effort we make is to force clients to think long-term and to remind them of the mandates they’ve given us.”

He says Makena, the endowments-style alternatives manager, entertains more risk and diverges further from benchmarks than QIC does in any of its own products. By observing the manager, and taking part in quarterly day-long meetings and grilling sessions with senior Makena management as a foundation investor, some of the endowment culture rubs off on QIC and helps shape its communication to clients. “We’d like to be closer to the way endowments manage money,” Holzberger says.

One Australian fund that exploits long-term horizons, Westscheme, maintains conviction in its substantial illiquid holdings because it is confident that its members will stay for a long time, chief executive Howard Rosario says. “But, unlike the endowments, we have to be very careful about liquidity risks. Then again, we have been cash-flow positive for the whole time and we see no reason why that would change.” The fund uses market surveys to learn how peers are deploying their money, and forms assumptions about how the fund is likely to perform in comparison to competitors for the years ahead. “From that we derive business risk.”

The fund’s alternatives book, part of what it calls its ‘target return’ portfolio, apparently holds many income-bearing illiquid assets: it has “thrown off double-digit returns” in each year of its existence. While the prospect of a run on a super fund has seemed unlikely to date (our unnamed CIO says it is an “unfounded fear”), it should never be dismissed.

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