Mark Delaney, chief investments officer of AustralianSuper has sought to calm fund manager hostility to his fund’s rolling plan to manage money internally.
This follows a formal announcement by the fund that managing a proportion of equities, property and infrastructure in-house will eventually deliver savings of $150-million per year (or 15bps) on external fund manager fees.
Both Delaney and AustralianSuper’s head of equities Innes McKeand have received hostile questions to the announcement when speaking at industry events over the past few weeks.
Delaney was bemused by this as he says the funds management industry will still stand to gain as funds under management at AustralianSuper soar from $70 billion to $100 billion over the next few years.
“A lot of my friends work in funds management and they tell me that the industry hates it, they reckon we are like the devil or something,” he said. “They say it’s not going to work, that it is harder than what people think.”
Under the new model the in-house team will merely be one manager amongst a portfolio of equity managers.
“We are not looking to replace talented managers, we are looking to supplement talented managers with some broader capacity,” said Delaney. “If you are a talented manager, you have no problems. But if you are an indifferent manager who struggles to add value after fees well you are going to struggle to survive in a world where everyone internalises.”
Inspiration for the move has come from Canadian funds which have achieved average MERs of around 30bps compared to Australian Super’s 63bps, according to Delaney.
He says this shows it is possible to run a portfolio at half the costs Australian Super is running and be successful at it. He adds the trend to internalise at large global pension funds is “almost universal”.
The first step in running money in-house has been the award of $1bn in Australian equities to a team run by Sean Benwell, who used to run a similar amount of money for Equity Trustees.
Benwell is running a core active strategy with a bias towards top 100 stocks and a medium term holding period. He will report to Innes McKeand.
Delaney said the hardest part in setting up an internal team has been the creation of an IT system, rather than the recruitment of personnel. The building of the platform, which will also be used for internal run property and infrastructure, took eight months, but recruiting managers was easier owing to the lack of jobs and the large number of candidates looking for work.