With 16 years’ experience Steve Merlicek is the longest serving chief investment officer in Australia; and after spending six of those years at IOOF he is seeing a fine run of performance.

When Steve Merlicek arrived at IOOF in 2009 the then United Capital Growth fund was bottom or close to bottom of most performance surveys. He was brought in from the high-performing Telstra Super fund to introduce a performance culture in a retail sector where it was the common view that the money was “sticky”, so coming top of performance tables was not a priority.

He sees the hiring of Jeff Rogers by IPAC and Sean Henaghan by AMP Capital as part of the same trend by retail funds to poach high-performing people from outside their sector.

After six years of building a new team and changing the process, over the year to the end of August 2015 the IOOF MultiMix Balanced Growth Trust was first in the SuperRatings SR50 Balanced (60-76) Index, with a return of 7.47 per cent. The IOOF MultiMix Growth Trust was first among growth funds in the year to date (11.7 per cent) and over three years (16.8 per cent) to the end of August in the Chant West implemented consulting survey.

In total, Merlicek runs $17 billion, of which $9.8 billion is in the MultiMix range which is mostly superannuation money. There is $1.5 billion in a MySuper fund, which charges a highly competitive 50 basis points, and $6 billion in the adviser-led Mosaic business.

Performance, says Merlicek, is in his DNA.

“We are trying to do what everyone else is doing and do it better – my competitors are doing the same thing.”

The performance figures are interesting in that they have been achieved with a relatively small use of high-fee alternatives such as hedge funds or private equity. Instead, there is a focus on the best mix of passive and factor-investing approaches to equities wherever it can be justified over active equities and, therefore, higher fees.

Merlicek would have liked the turnaround to have come sooner.

“For the first couple of years you are putting in changes and not really seeing the benefit. You end up saying: ‘Am I on the wrong track? Have I done something wrong?’ If you have been in the game long enough you know what to do, and it is a case of being disciplined. You have to have the courage of your convictions in this game.”

Indeed, he refers to his task as turning a super tanker around. He attributes much of his success to the strength of the team he has built, singling out experienced portfolio managers such as Dan Farmer in domestic equities and Simon Gross in domestic property.

Merlicek is pleased with the outcome for international equities run by Stanley Yeo, whose team is currently beating its passive benchmark by 0.9 per cent due to a mix of passive and active, as well as an enhanced passive approach with State Street Global Advisors, Goldman Sachs Asset Management and Macquarie. He is particularly intrigued as to how such enhanced passive or smart beta investing will reveal itself over five years of performance against an ordinary cap weighted index.

IOOF asset allocation
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Other areas of outperformance are in small caps, where IOOF is adding around 1000 basis points through investments in OC Funds Management, Legg Mason and Selector Funds Management.

“Putting a team together and having the right cultural mix is so important in this game. That is half the trick. We are hitting top quartile across a number of asset classes now,” he says, adding that his role in bringing together an “incredibly bright team” and nurturing them is to be a culture manager and a mentor. Having worked for 31 years in investments helps, as well as having seen the 1987 crash, the tech wreck and the global financial crisis first hand.

His team mantra is to be strongly evidence based. This plays into another belief around risk. “A lot of what I do is about risk reduction,” he says. “If you can avoid the trip ups and the drawdowns, you will gravitate to the top over time.”

Beyond MySuper, much of the other money Merlicek runs is in more growth-orientated funds that access a high number of alternative assets. He notes with pride that he was one of the first investors in Australia to invest in private equity and has attended the AVCAL (Australian Private Equity and Venture Capital Association) conference since 2000.

“We do private equity in a very considered way, because we know we are going to get the high fees,” he says.


Team size

All this is achieved with a team of 14 staff – eight in the Melbourne office and six in Perth.

Merlicek is sceptical of the trend towards large teams that take a more granular efficiency and fund-manager partnerships.

“There are a lot of fallacies that are said in this industry and many who are talking their own book,” adding that there is not necessarily a correlation between the number of team members and performance.

“Are we getting higher returns than we did 10 or 20 years ago?” he asks.

He also views the trend with scepticism, given the ability of the average self-managed super fund to outperform institutional superannuation funds.

“How can the amateurs do better? They have other advantages. It might be they can move quicker or in asset classes we cannot access.”

Merlicek also makes the most of other resources he can tap into, rather than enlarge his team.

“Being an ex-military man I like to see us like a special forces unit and we leverage off the skills and abilities of the force multipliers of other organisations,” he says.

In this way, IOOF not only uses the manager research and Monte Carlo simulations of Russell – much of it carried out from its head office in Seattle – but also that of Mercer, and research from investment banks.

“That model works for us. Others might want to build up to a team of 100 and do it that way,” he says.



The IOOF funds are unusual for their strategic use of Russell Investments as an asset consultant, given that all the other major super providers use Frontier, JANA, Mercer or Towers Watson.

This was Merlicek’s initiative because IOOF’s funds did not previously use an asset consultant, and he knew Russell from his time at Telstra Super.

“A lot of people say we are doing well, we do not really need them; especially if you have an older, stable team like I have got, with a lot of experience; but it is best not to get arrogant in this game. Always have that check, that second opinion, as there are things you do miss.” He notes that the use of Russell has been given the thumbs up by Chant West in its profile of IOOF.

“Warren Chant gave us a lot of points for using Russell and using them in the right way,” he says. “They are still a powerhouse offshore and they are a competitor to us, with their multi-manager funds.”

His operation also comes with a certain amount of autonomy built in. He praises the role of the IOOF investment committee, who he says have empowered the investment team with “a true alignment of interest”.


How to have longevity as a CIO

When asked to explain his longevity as a chief investment officer and what advice he would give to those newer to the game, he cites a “healthy paranoia – you are only as good as your last football game”, so that his team have a performance culture where there is continual improvement. His survival is something he has clearly given a lot of thought to, as he can cite the statistic that the average retail CIO lasts about two-and-a-half years.

He also emphasises the role of humility.

“Don’t be arrogant. I have seen a few of those and they eventually trip up. A few say ‘I am right and the markets are wrong’. More often the market wins.”

And he recommends the role of persuasive communication, particularly when talking to a board. He recalls how he used to get frustrated when what he thought were good investments ideas were knocked back, but with time he has come to realise it was his weakness in not marketing or putting across the idea to someone who is not an investment professional.

“Part of the role of a CIO is to be a marketer to your investment committee, your executive and your own members. When I took more of that role and I explained, I started to win a lot more.

“You always say it is their problem, not mine, but you have to look at it yourself and say ‘Maybe I can articulate this in a better way’; but maybe if I cannot do that there is something wrong with the idea.”

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