New Local Government Super (LGS) chair, Bruce Miller, says the superannuation fund is focused on growth post-global financial crisis (GFC), with the board open to potential mergers and its attention fixed firmly on environmental, social and governance (ESG) investment strategies.
Miller, a former Cowra Shire mayor recently elected for a two-year term, said the $7-billion fund took a hit during the GFC and is gradually making ground again.
“It’ll be back to where it was over the next few years. I think that has certainly been a challenge for the fund but we’re now on top of that.”
He said the fund’s unique ESG approach to investment has proven to be a successful formula that the fund will continue to build upon.
“There is certainly no view of diversifying into other fields, at this stage anyway, and I guess we’ll have an open mind on that as we will on some of the other stuff that’s been mooted about mergers and all the rest of it.”
Miller said the fund is not currently engaged in any “conversations” with other funds, but the board has an open mind and, if approached, would consider an offer if it was advantageous to its members, of which there are approximately 90,000.
ESG investment approach a winner
Meanwhile, chief executive Peter Lambert said a “surprisingly simple” ESG investment approach has delivered a positive return despite the doubts of some. He added that, being a discrete portfolio in itself, it’s very easy to measure whether it’s adding value to members – and it has.
“The reality is though that there are times when it underperforms and typically, in times when the markets are running hot, companies with poor ESG rankings will still perform well. But we do find that, over the long run, we’ve had a positive outcome from that.”
A separate bond portfolio through Omega, where they’ve taken out sovereign bonds in countries with large debt problems or poor governance, has also proven fruitful.
“The challenge has always been, in the past you could do this for equities, but it was very difficult to find anyone who could do it for bonds. That was something that we were quite innovative in.
“We actually approached a bond manager and said, we really believe in this and we want you to construct a sovereign bond portfolio that actually looks at ESG and takes countries out of the portfolio that we believe are poorly positioned,” he said.
A comparison between performance and the normal bond indices determines whether you sit over or under the index, according to Lambert.
“And that’s been quite successful, although I think it’s fair to say that the debt problems, probably, have been helpful to us because these are countries that have yields that are starting to blow out. Therefore, their bond performance would suffer as a result.”
Lambert expressed disappointment at the industry’s lack of progress in ESG investment strategies, saying it’s no more advanced than in 2005/06.
“Clearly the GFC has put it back and everyone has sort of gone back into their shell a little bit and hunkered down because of investment markets.
“But as time moves on, I think certainly these things will re-emerge once again because we’ve now got a lot more data than we had in 2005/06 to show that ESG – and ESG risk – does play a part in the portfolio. So we will find that these things now start to develop a little bit of a tail wind.”