Anne Whittaker joined the Australian Catholic Superannuation and Retirement Fund (CSRF) as chief investment officer in the momentous month of October 2008, just as the global financial crisis (GFC) was hitting full swing.

“Everything went down and you couldn’t hide anywhere,” she recalls.

The GFC ended up producing two years of negative returns for CSRF in 2007-2009, and pensioners were one of the groups that bore the brunt, as about 20 per cent of assets were managed on behalf of retirees.

“It was really sad for pensioners in the draw-down phase. Now people are a little more wary,” Whittaker says. “They have a cash bucket to draw down on when times are bad, but I don’t think that was the case before.”

Pension assets have grown back to 21 per cent with many members taking advantage of legislation that allows them to establish a transition to a pension while still working, from age 55 onwards.

CSRF plans to segregate its pension assets separately from the fund’s main pool to reflect members’ higher risk sensitivity.

“We’ve got a cost if we segregate all these assets, but some we might manage differently, like Aussie equities – we might just concentrate on income and franking credits; and we don’t really care about turnover for pension assets, because they don’t incur any tax,” Whittaker says.

It is a major move which will incur significant costs. The fund’s assets are currently held in a single pool by custodian BNP Paribas and only split at the accounting stage. Such a shift would also require careful risk management and strengthened internal systems – CSRF is one of the few funds to still self-administer, employing the DST Bluedoor’s platform, rather than  a major industry player such as the Link Group or Superpartners.

Whittaker says the move will leave a lot to consider. “There will be a lot of testing, but I imagine we will have to segregate all these assets,” she says. Another key shift since 2008 has been a greater use of dynamic asset allocation (DAA) – this picked up once the fund established an investment committee in early 2011.

“It’s having that conviction in our decision – making larger moves so we can protect the portfolio or take advantage of situations,” Whittaker says, noting that as a mid-size fund of almost $6 billion, it is also wary of over-diversifying.

“We have a small investment department – it’s not as if we can investigate every little product which is out there and every variation, so we stick to the ones that we can investigate,” she says.

Many super funds have been diversifying their portfolios by awarding mandates to multi-asset funds, which can make their own asset allocation decisions, as well as awarding money to funds with more absolute return and inflation-linked targets. CSRF’s fixed interest portfolio is one example – it has long eschewed regular fixed-interest bond portfolios in favour of absolute return strategies.

CSRF splits much of its fixed-interest exposure into liquid defensive (14.8 per cent of its balanced portfolio at June 30, 2013) and illiquid defensive (5.8 per cent). The illiquid defensive allocation is comprised of less aggressive mature infrastructure (which the fund prefers over private equity) and a hedge fund; and the liquid defensive allocation is mainly comprised of absolute return funds managed by Kapstream Capital and PIMCO Australia. Both have the ability to invest in normal duration credit but have largely unconstrained strategies, she says. “We don’t want the duration [risk],” she says.

Default option

The investment goal of CSRF’s default option – the MySuper Balanced option – is to beat the rate of inflation by 3.5 percentage points over rolling five-year periods. The MySuper Balanced option returned 11.7 per cent over the year ended January 2014 (slightly under the median fund’s 12.4 per cent, according to research house SuperRatings) and 8.1 per cent a year annualised over the five-year period (against 9 per cent for the median fund).

However, CSRF’s members are unusually active with only about 70 per cent in the default option, compared to more than 90 per cent for most rivals. The growth and cash options are the second and third most popular investment options, reflecting a divergent membership with differing needs, which require careful management.

“I need to keep an eye on liquidity levels – they’re mobile, let’s put it that way,” Whittaker says. “A lot of our members did move during the GFC and even after, when it was probably the wrong time to move – they kept on going into cash.”

Chant West statistics for the Australian Catholic Superannuation & Retirement Fund

Returns to June 2013 (% pa) – balanced option

1 year    13.7
3 years    6.9
5 years    3.1
10 years    –
Members June 2013 (‘000)    91
Assets June 2013 ($m)    5,261
Proportion of assets in super default (%)    69.7
Net contribution flows 2012/13 ($m)    237

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