“It’s not rocket science but a willingness to think outside the asset-class model [of investing]. We’re the first to say that we are on a learning curve. We are walking, not running.”

On QSuper’s website and in its product booklets, members still read about asset classes. To them, risk factors don’t exist. “The constituency isn’t ready,” Holzberger says. “We don’t want to alarm people.”

The fund’s risk-factor approach to investing has not yet transformed its equity portfolio. The board is now choosing the risk factors in equity markets – such as value, momentum and minimum variance – to which it will seek exposure. From there the fund will dynamically manage its exposure to these factors and execute through a manager. If the managers it selects are unwilling, it will develop the expertise to do so itself. “What we won’t compromise is the strategy of the fund.”

For now, like most Australian funds, it maintains a strong bias to domestic equities. In its moves to temper this, the board will act carefully. “There is a high degree of sensitivity. We know that public announcements of these moves will draw attention to the fund,” Holzberger says. “The debate is not about having less Australian equities, but how much less and when do we make the change.”

The fund invests in unlisted assets around the globe. These are not managed internally and, under the current board and management, are not likely to ever be. The long lock-up periods involved make the illiquidity risk premium difficult to manage dynamically, and striking long-term contracts for property or infrastructure assets in overseas markets can be treacherous. “While risk premiums in private markets are relatively definable, to build a team to do idiosyncratic deals in private markets is too risky,” Holzberger says.

The fund’s performance is reported to the investment committee independently of the team. It aims for inflation-plus targets: beating a benchmark by 50 basis points is not prioritised. “What we measure first is overall portfolio success,” Lillicrap says. How it performs against a conventional benchmark and competing super funds is good to know. But just that.

Lillicrap likens a member’s lifetime investment with QSuper to an airflight. “Year-to-year volatility is like a headwind and turbulence,” he says. It is not as important as the destination. “As an industry, we give people a lot of information about turbulence and headwinds and less about the destination.”


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