A shift in focus to liabilities and income replacement has led Equipsuper to make the largest change to its investment strategy in more than a decade.
In Equipsuper’s view, the unprecedented investment environment will persist, making it much harder to achieve return targets, particularly through the investment strategy used to date.
“The market is dictating our focus. The markets have turned, and we need to turn, to align ourselves more with the markets,” said Nick Vamvakas, acting chief executive and executive officer of risk.
“One way of meeting targets is to drop them, but that doesn’t give members 70 per cent income replacement,” he said.
Sixty-seven per cent of members surveyed, said income for life, including income protection insurance, was of interest to them, according to Geoff Brooks, executive officer of strategic marketing and communications.
As part of a long consideration process, of how best to meet members’ income needs in retirement, originating with the introduction of its MyPension products; the board decided the responsibilities of chief investment officer and executive officer of liability management should be consolidated into the new role of executive manager of investment strategy.
A main responsibility of the role will be taking a deep strategic look at asset allocation through the lens of defined benefit liabilities and income replacement for those in defined contribution. A move to a liability driven approach with a risk overlay, rather than the super fund’s “traditional” investment strategy.
“We are moving away from peer comparisons and benchmarks, because even if we outperform, and feel good about it, if we don’t make the targets – it’s not in members’ best interest,” Vamvakas said.
Troy Rieck, who held the position of executive officer of liability management, has been appointed to the new role and as a consequence Michael Strahan will be departing the super fund, after more than 10 years as its chief investment officer.
Rieck was selected for his expertise in liabilities and asset allocation. He spent 13 years as the managing director of global multi-asset at QIC, which provided super funds and other institutional investors with strategic risk management services, partly through advice on asset allocation and portfolio construction.
He was appointed to the role of executive officer of liabilities in May 2015, following a review by the board of the investment strategy posed by the challenge of an aging membership.
As part of the shift, the investment team will also be restructured.
Rather than having portfolio managers and senior portfolio managers, the investment team will be split into three groups – defensive assets, growth assets and asset allocation – though team members will retain cross-functional responsibilities.
“The investment team’s focus will be to continue increasing the diversification of return generators within the fund, to be more dynamic in the allocation of capital and risk, and to drive greater investment efficiency across the portfolios,” a spokesperson for the fund said.
About one-third of assets are managed in-house, which is not expected to change.
In addition, this shift in strategy is not expected to affect the investment options offered by the super fund, as members have exercised a choice to be in them.
The super fund has more than 100 defined benefit schemes, which account for a quarter of the membership and a third of the $7.5 billion of assets.
Vamvakas praised Strahan’s skill and suggested it was worthwhile for other super funds to consider him for a board position or an investment role.