Dick Shearman, chair of NGS Super talks to Investment Magazine about investment governance, some niche impact investments – and how the fund is progressing without a chief investment officer.

In 2013 the Australian Prudential Regulatory Authority (APRA) warned that trustees would no longer be able to excuse any unsuccessful investment decision by stating their consultant had advised them to do it.

This is easier said than done, says Dick Shearman, as trustees are quick to take advice provided by experts, be it from a chief investment officer or an asset consultant.

“There’s a tendency to think ‘Damn, these people, they’re the experts and we are being provided with this advice, perhaps we should follow it’,” he says.

“That’s natural, and by and large it’s the right approach.”

Equally, he says, there is the need to feel the fund is not accepting “pre-packaged solutions” and for all advice to be looked at closely, and analysed and assessed.

Such pressures led NGS Super to create the role of chief investment officer with the aim of having a strong internal investment strategist who would continually review risk budgets and tolerances.

Speaking at the time, chief executive Anthony Rodwell-Ball said: “What we are looking for is a much stronger foil to the asset consultant. We have always believed that we needed to have sources of advice, with well-formed and well-argued views that are a counterpoint to the asset consultants.”

Mary Jane Fallon joined the super fund in 2013 as its first chief investment officer, and left in July 2015.

“Everyone that has worked for NGS has made a positive contribution to the fund, and that includes Mary, and we’ve all benefitted from that experience,” Shearman says. “Moving on was a choice that she made.”

Since her departure, the fund has used a combination of internal staff, asset consultants and a London-based firm bfinance to assist it in making asset allocations and selecting fund managers.

“We are comfortable with what we are doing at the moment, but it’s always under review,” says Shearman, adding that while in the short term they were not looking to appoint a new chief investment officer, they might in the future.

Ethical investing

The change in governance structure is not halting a broadening out of the fund’s applications of its fiduciary duty.

“We have the view that true wealth is more than just your financial state,” Shearman says. “It’s your values, it’s what you believe in, it’s what you do at work, [and] it’s what you do when you are not working.

“All of those things constitute the concept of wealth and we promote that view with our members. That is one of the reasons we are looking at ways we can both assist the needs of our industry and at the same time make sure what investments we have are as ethical as possible.”

Following HESTA’s lead, NGS Super’s board took the unanimous decision in August to divest its $5.5 million stake from Transfield Services (the company which runs the detention centres on Nauru and Manus Island) on moral grounds.

“The argument that if a fund had an independent director it wouldn’t have made the decision to divest, well, that’s nonsense,” says Shearman, voicing his annoyance on misconceptions present in the debate about independents.

“We don’t have any independent directors, but we had a unanimous decision from both our employer and union representatives that we shouldn’t have unethical investments.

“I think people don’t want to make money out of returns juiced up by investing in cluster bombs or detention centres. We are comfortable with that position.

“If we had independents on the board that argued differently, we wouldn’t want them, because they would not be consistent with the values of the fund and the members we have.”

Unlisted assets

One of the bolder moves the fund is taking is in its property portfolio, exploring the funding of pre-schools in a way that would provide an appropriate return for the fund.

“This is an area we’ve been looking at in conjunction with the employers. In a sense it is similar to what Cbus is trying to do,” says Shearman. “It is trying to support its own industry and its own members, and we are trying to look at ways that NGS can do that, given the capital needs of our sector, which are huge.”

The initiative comes in response to a large spike in demand for school places in New South Wales and the pressure on government to provide new schools.

“Parents are sending their kids to government primary schools, but they are increasingly feeder schools for the independent and Catholic sector. In Sydney now, 50 per cent of kids in high school are in non-government education.”

Another area of innovation is in retirement products, where it is exploring a new asset allocation for members transitioning to retirement and who are already retired.

The fund has already introduced a State Street product which has a 20 per cent direct property component to create greater stability of returns. The product is suited to people with high balances who are concerned with protection, rather than growing assets further.

It is only a start.

“It’s a real challenge and we are continuing to investigate that space,” Shearman says. “There are a range of other products around and we’ve had some discussion with other super funds and with providers, to expand what we can offer to cover the range of members that we have, and the different financial situations they find themselves in.”