AustralianSuper has posed the question of whether it should have its own investment management and currency hedging teams based in Europe and America.
Peter Curtis, head of investment operations at the $85 billion fund, who was speaking at the Investment Administration Conference in Sydney, said this was a model used by larger pension funds internationally.
Curtis spoke in the context of the fund projecting into the future and seeing assets doubling every 4-5 years and then imagining what sort of investment operations model it would need to match.
“The capability of what you need within a super fund to meet this wall of money is quite phenomenal,” he said.
He argued that a greater level of internalisation and specialisation was inevitable for two reasons. Firstly, in many cases the money they had in individual asset classes was greater than the total managed by individual fund managers they used in that asset class. Secondly, if they did not build internal capabilities when they had the scale to do so, they would be only contributing to the sometimes great profits of providers.
He quipped to delegates: “Do we help investment bankers upgrade their Ferrari every 4-5 years or do we do more in-house?”
In this context, he mentioned that as assets under management grew and the amount the fund owned overseas, that AustralianSuper would be running a “massive currency hedging book”, noting it could follow in the path of large Canadian funds in having currency hedging and investment teams based in different time zones.
At the conference, Sunsuper, Cbus and VisionSuper all revealed how they were all to on a path of carrying out greater activity in their middle office to gain such efficiencies,
Though, Naresh Subramaniam, head of investment services – asset servicing, National Australia Bank called into question the relentless expansion of middle offices.
He asked whether such operations were just duplicating the roles already performed by their custodians and thereby merely adding to costs and fees.
Lounarda David, investment operations manager at Sunsuper, said that her fund felt that much of the analysis performed in-house could be done on a more tailored basis and would ultimately be superior. She added that it was useful to have such capability in-house as it gave them insight into the limitations of their providers.