Cbus has split the duties of a chief investment officer into two roles: executive manager of investment management, and executive manager of investment strategy.
This uncommon structure means that Trish Donohue and Kristian Fok are joint-finalists for chief investment officer of the year, with the winner due to be announced at the Conexus Financial Superannuation Awards at the Palladium at Crown in Melbourne on Thursday night.
As a result of a strategic review of its investment operations in 2012, the $31 billion fund for the construction industry decided to restructure the investment team, splitting it into the two divisions of investment strategy and investment management.
The aim of this was to ensure that “appropriate time and focus was spent on researching and assessing investment decisions and also ensuring a clear allocation of resources and skills for investment management,” particularly as the fund saw it would grow in size and complexity.
Trish Donohue, executive manager of investment management at Cbus, says: “This clear separation of duties, especially in risk management and performance monitoring, was part of the fund’s response to stronger super.
“We also see this separation as critical as we continue to grow, and especially as we consider the next phase of our investment model and potentially moving towards managing more assets in-house.”
Both Donohue and Fok are members of joint committees, such as the internal investment committee, which supports the trustee board and investment committee by reviewing and approving major recommendations from the Cbus investment team.
Donohue has been with the fund since 2000, and while Fok is a relatively new addition, joining in 2012, he served as the Cbus advisor from Frontier for many years prior to taking on the investment strategy team role.
“We have a very similar set of values and investment beliefs which means that although we look at things from different angles our target is the same. This creates a really strong alignment and focus on member outcomes,” Donohue says.
“We sound out ideas with each other, and frequently discuss how our teams interact and support one another. Cbus has a very open office environment, and our teams are located next to each other, which also helps in terms of access to each other for discussions.”
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New investment model
Donohue and Fok have collaborated to develop a new strategic plan, with an accompanying investment model that focuses on making the transition from a $30 billion to a $50 billion fund over the next three years.
As part of this, Fok has been building relationships with like-minded institutional investors. One of the key leanings to come from larger super funds is that capacity constraints among Cbus fund managers will grow, meaning mandates will not give the same rate of returns.
However, a basic advantage for Cbus is that it has strong and positive cash flows, and thus the ability to think long term and take illiquidity risk. A bolder realisation is that it can take greater peer risk of underperforming in a short-term horizon, if it is for the long-term good – a risk that other industry funds might feel unable to take.
Part of the reason for this is that Cbus has started member briefings where it explains its policies, but it has also ramped up its communications to members elsewhere.
“We are mindful of peer risk, but if we believe that there is strategy that gives a better outcome we are not afraid to pursue it and communicate it,” says Fok. “The more you deviate away from peers, the better you need to be about communicating why you are pursuing that strategy.”
Investing in tangible things resonates with Cbus members, according to Fok, as a lot of the other investment activities tend to be seen as “paper shuffling”.
As such, developing property and infrastructure are two obvious areas for Cbus to ramp up its exposure. A long-term investment perspective is important as stronger returns usually only occur once a development is completed. Indeed, the 21.5 per cent Cbus that property returned to the end of December 2015 highlights the appeal of this approach.
One of the new areas Fok is exploring as a piece of longer-term investing is affordable housing projects, run with government support and built by consortiums.
“If you could combine the finances and some of the knowledge we have with someone who has the land and can operate and manage, then you have a group that can come together,” says Fok, adding that banks would also be part of such consortiums.
In 2014 Donohue led the process that resulted in Cbus appointing JP Morgan as its new custodian.
This has benefitted the fund in a number of ways, including $8 million in cost savings. The fund has also leveraged JP Morgan’s global presence through participation in a number of thought leadership forums and access to their extensive client base.
“They [JP Morgan] have delivered a number of capabilities to the fund which are of strategic importance including support of the CSM Managed Investment, introduction of tax optimisation initiatives which provide the fund with greater tax efficiency, and the introduction of a new investments analytics tool which will provide the investments team with greater portfolio insights, market data and research,” Donohue says.
In addition, the investment team is using the custodian’s asset-level data to feed other systems such as MSCI’s BarraOna and FactSet on a daily basis.
“This is providing much more granular and up-to-date analysis of our portfolio and enabling a deeper level of bespoke research. For example, as these systems are built from the bottom up we can use them to monitor individual or composite exposures, active positions, and risks,” Donohue says.
Cbus is currently using BarraOne to monitor portfolio, asset class and sub-asset class risks, risk attribution, performance attribution, portfolio optimisation, stress testing and testing the potential impact to the portfolio from new managers.
“We are in the early stages of trailing Factset, with a focus on testing its capabilities with respect to performance attribution and monitoring unit pricing. We are continuing to work with JP Morgan to further develop our insights into performance attribution and after-tax performance reporting.”
The new custody arrangement also helped reduce management expenses from 77 to 63 basis points in the 2014–15 financial year.
Other contributing factors include the fund renegotiating fee structures with fund managers, consolidating manager relationships and adjusting its strategy to impact cost outcomes, such as a having a lower allocation to private equity – traditionally a more expensive asset class.
This has resulted in more than $30 million net benefit from reductions in investment costs.
Building diversity to build strength
Like many people in superannuation, Donohue is passionate about ensuring the super fund provides the best outcomes it can for our members, so that they can retire with dignity – and she is very clear on the part she plays in this.
“This includes providing the information and processes that will enable better outcomes to members, whether that be reducing risk, increasing efficiencies to drive lower costs, or providing information that assists in evaluating new strategies.”
She also recognises and is passionate about enabling others to fulfil their roles, both the next generation of leaders and women.
“As a female investment executive, I am also conscious that I am a role model for women within the team. In my role, I therefore seek to attract and retain women into our investment team and support other senior women across our industry.”
“One way we’ve focused on seeking to increase Cbus’ diversity is through producing videos that potential employees can watch to get insight into women and their roles at Cbus. Kristian, along with our chief executive, David Atkin, are also very conscious of the benefits of diversity and as a group we continue to look for new initiatives which will support more women in our industry.”
The winners of the Conexus Financial Superannuation Awards 2016 will be unveiled at a special black tie event at Palladium at Crown, Melbourne, on March 3, 2016, which is being sponsored by AIA and Vanguard. You can purchase tables of ten or single tickets by clicking here.
Conexus Financial has drawn on its extensive contacts and resources to involve an esteemed list if VIPs to present the awards and further honour the important contribution the superannuation sector makes to Australian society and the economy.