It has grown fast. Over time, it merged with smaller funds run exclusively for other workers in sections of the Queensland public sector to become one of Australia’s largest investors. In 2000, the state government legislated to add 12.75 per cent contributions to the 5 per cent chipped in by QSuper members. This contributions tailwind fuelled the fund’s average account balance to $100,000, far beyond the industry’s average of $62,000.
Until late 2008, the management of these assets was totally outsourced to state-backed funds manager Queensland Investment Corporation (QIC), four doors down on Eagle Street. Barring this arrangement, QSuper had “mirrored” the guiding legislation for super trustees, the Superannuation Industry Supervision Act, since it was passed, Vilgan says. But to broaden its membership the fund needed to become an autonomous investor licensed by the prudential regulator. QSuper needed investment people. It needed its own ideas.
Early in QSuper’s reinvention, Holzberger, then head of asset management at QIC, was hired as the fund’s temporary CIO. In his 14 years at the manager he ran investment strategies for its cornerstone client and knew its portfolios well. Four months later, he became QSuper’s permanent CIO and progressively hired former colleagues and other investment professionals to implement strategies developed at QIC. Damian Lillicrap, QSuper head of strategy, now executes a way of investing that he advocated at QIC, while Charles Woodhouse, its head of funds management, uses his experience to strike investment mandates and set terms with asset managers. “Many of the things we’re doing here had their roots in what we did at QIC,” Holzberger says. “They’re good things.”
QSuper’s new strategy is also shaped by the investment beliefs formed by its board and investment committee.
It is expected to manage $60 billion within the next decade. This stunning growth trajectory spurred much debate among board members. The fund’s burgeoning scale “shines a spotlight on the need to get the money invested through a sustainable model,” Vilgan says. It soon decided that emulating the common governance, asset allocation and internal structures used by super funds would not support its growth. It must be different.
“It’s no secret. Everybody acknowledges it: a lot of investment strategy in Australia is very introverted. The funds look a lot alike,” Holzberger says. “Every fibre of my body says the standard solution is not right for this fund.”
QSuper’s new investment strategy primarily seeks returns through flexible asset allocation, not manager alpha, and is designed to remain potent as the fund grows. It has envisaged the size of the alpha programs that it could run now and in the future. “We looked at the alpha programs other funds were running and how much time that would absorb,” Holzberger says. “We acknowledge there are managers that can create it. But it’s hard to find big institutions that year after year find alpha programs that reward them adequately for their risk.”