“The strategy governs the fund completely,” says Steve Bracks, chairman of the Cbus board. “It determines the budget and sets priorities.”
Those priorities include positioning the fund to be the “complete” fund that covers the entire building and construction industry, including the 45 per cent it currently doesn’t represent in whitecollar professions such as architecture.
“We want to be the best we can in that and offer the best outcomes that lead us to a growth path for coverage, to potential allies to partner [with] in opportunities.” This means the fund has taken a good look at its priorities, focusing on members and how to service them better at different point-of-life decisions. “We want more complete outreach and service, for example, financial planning and advice,” Bracks says.
The fund has also done some pretty intense navel gazing at its investment department resources and strategy, and for the first time a complete investment strategy is outlined in the annual report.
Cbus is not focusing on bringing assets in-house to manage, but is keen to increase the amount of strategic decision-making and investment staff in order to be more dynamic in assessing what’s happening externally, and make changes to allocations in real time.
The investment team will be restructured so the current investment head, Trish Donohue, will look after investment-manager selection and monitoring, and a new investment executive will be recruited for strategy.
The fund is also looking to beef up its risk management and will recruit a specialist in that area, too.
“This will take time to build up,” Bracks says. “And it will have some implications for our consultant, Frontier, that strategic thinking will come within the fund. But we want the ability to look through the portfolio, link between economic climate and asset allocation.”
The internal investment team is not the only group of people facing a skills assessment at Cbus, with the board and sub-committees also undergoing some serious upskilling.
“We have an effective governance model at the board and executive levels, and we have periodic reviews to measure that. We had a review from Deloitte just recently and it was even more complimentary about our structure. We have a very high level of quality information from executive to board, and a proper and appropriate separation of board and team. We have used the talents on the board as best we can to form key committee structures and we are also embarking on a ‘serious upskilling’ of the board. We can always do better,” he says.
Cbus encourages mandated and voluntary upskilling of the board; its members can have externally accredited qualifications, where appropriate, and the executive team also acts as educators.
Some of the presentations of accounts have been changed to include notations and explanations to make the information more palatable.
Bracks also says that since he, as chair, and chief executive, David Atkin, have worked together, there has been a deliberate strategy to bring new talent to the board.
“We have changed more than half the board in that time,” Bracks says. “Ongoing replenishment never finishes.”
A rigorous model
Atkin says the fund has developed a skills matrix to benchmark the trustees for the board and committees and this is outlined in the fund’s comprehensive new 46-page fund governance policy.
“There are three tiers, and a trustee can come in at the lowest tier and we will train them,” Atkin says. “In each committee, there is at least one tier-three.”
However, Bracks is sure to point out that the board “owns all of those decisions”. If the sponsoring organisation has a vacancy for a trustee position, they can present a nominee but they must be approved by a two-thirds majority of the board.
“It’s a rigorous model,” he says.
Atkin explains a lot of the “work” is done through committees enabling the board to be very strategic.
Bracks agrees that the committees are very active and he is looking to introduce a periodic meeting with the chairs of the committees as another governance level.
“Start with a strategic plan that is right for your sector and members. External factors and regulators can be overwhelming, but we spend most of our time on strategy,” Bracks says, adding his experience in public administration has set him up for dealing with large extensive budgets and policy.
“If you concentrate on what’s right for the members and the industry first, then anything else will fall into place,” he says.
Atkin says the fund made a deliberate effort for the planning around MySuper to be prepared ahead of the disclosure rules. In fact, the fund spent more than a year in planning, with most of the work centred around risk appetite.
“We made a deliberate effort to do the planning and the board has real ownership of the strategy. For example, when we had prudential consultation with the Australian Prudential Regulation Authority (APRA) last year, they were asking directors to talk of the strategy without executive input. I was observing and watching the ability of the directors to articulate the strategy; APRA was looking for directors’ skill levels but also understanding of the strategy and risks.”
Bracks says they were “knocked out” by us.
This year’s Cbus annual report takes transparency seriously and is something of a leader in the Australian industry. It clearly discloses strategy as well as more delicate details such as board and executive salaries.
“My view was that we should disclose everything. We have nothing at all to hide. And with our remuneration, we have clear point systems for assessing it.”
With the union-appointed directors’ fees, the remuneration goes back to the union. And with the employer-directed fees, most of them go to the individuals.
With remuneration of $500,000 a year, Atkin says he is somewhere around the middle of his peer group.
Furthermore, he says while Cbus is a not-for-profit fund, it is operating in a competitive environment.
“If we want to be competitive, we have to draw on the skills from industry. It’s about remuneration, but also the quality and background and capacity to do the job,” he says.
Cbus is also looking at its post-retirement offering and by the end of the year will have recommendations around how to de-risk members moving into transition and post-retirement, and create some additional choices, or potentially a new default, for those members.
If that’s not enough to contend with, Bracks is also openly looking at mergers with other funds. The strategy is to merge with like-minded sectors and allied industries, and a decision on this will be made by the end of the year.
“The building industry is a growing sector of the economy, and there is a lot of room for us to move in. Our investment strategy review is about that growth, the IT systems and other resources we need to be a whole-of-service fund.”