AustralianSuper has hired two people to run domestic small caps and is in process of appointing a third.
George Batsakis, formerly of Goldman Sachs, and Luke Smith, formerly of Canaccord Genuity, have joined the fund which is in the process of establishing its small caps and global equities teams, projected to reach as many as 20 in size.
Innes McKeand, head of equities at AustralianSuper, said the investment process will be to buy good quality small cap companies at a discount to intrinsic value.
As such he is searching domestically and internationally for people who have skill in fundamental analysis, who can build discounted cash flow models and who “really understand what a business is all about”. Those with experience in a sector which is a major part of the global equities market were of particular interest.
Throughout the process McKeand is seeking to build one integrated team across global equities and small caps.
This means if a stock outgrows the small cap portfolio it can be passed straight into the large cap portfolio and doesn’t have to be sold. In contrast if it was run by an external manager AustralianSuper would probably end up selling it and crystallising capital gain.
McKeand believes there’s lot of value which can be added to members by integrating thinking as one combined team. For example, by internalising teams AustralianSuper says there will be a $150 million reduction in costs per year by 2018, a saving which will be passed onto members.
He was keen to reassure the fund’s external equity managers saying they were not stealing IP as information barriers were in place stopping the internal teams from seeing what the external managers hold.
That was a conscious decision for two reasons. One, to reassure the external managers and two, to get the internal team to figure it out for themselves.
“We want them to build up the best quality process that they can and it means I don’t want them to be looking over their shoulder to see what Perpetual are doing or what Fidelity are doing. You want to build your own insight and that is absolutely critical,” McKeand said.