The Newcastle-based superannuation fund has finished the restructure of its investment team, building it out from four to 10 people and moving from a consultant-led model with a small team overlay, to an internally driven model.
“That was agreed in the second half of last year, then we’ve spent the best part of six months populating that model, and now it is all complete,” said David Bell, chief investment officer of Mine Wealth + Wellbeing.
Breaking that structure down, there are four teams under Bell: investment research, investment operations, retirement outcomes, and asset allocation.
“The team is still small compared to some of the big funds around, but actually we think that’s a good model because these people are able to flip across different asset classes,” Bell said. “For instance, in one asset class there may not be a lot of active return opportunities, so we might be better off spending our active fee budget in another asset class with another top higher conviction product idea.”
But, he added, if everyone had their own silo, like some of the big super funds, then that person would have an agency issue that would curtail them from supporting allocating to a performing area outside of their own, whereas a small team can be bit more holistic.
“I would say this is a whole of active return approach; that’s really the domain for them. They also get the opportunity to nominate additional sub-asset classes that we’re not currently considering.”
The hub of four researchers is working out the best way to get exposure to different asset classes, predominantly through fund managers, but they are also looking into which part of the fund manager space is best to do this, from passive right through to hedge funds.
The retirement outcome modelling team has two team members and has been in place for 18 months.
“We’ve made huge progress and we are probably one of the more advanced funds in Australia, in terms of our ability to model the distribution of retirement outcomes for our members, and once you do that you can work out how to design better structures for them,” Bell said.
He added that they are projecting the outcomes for members, but in a stochastic (not a deterministic) framework, so that they are able to consider a range of outcomes that a member may experience from that distribution.
“With that in your modelling capability you can then make an assessment whether that balance of outcomes, and the possibility of unattractive outcomes, is palatable in the way you designed your fund.”
Asset allocation hub
The key thing when considering the range of outcomes is not just investment risk, which has been historically the domain of investment teams, but motility mortality risk as well. Bell said the deeper understanding has allowed for the more effective development of products as internal discussions were much more powerful.
“Then there’s two on the investment operations team. Some funds run a separate investment operations division, but we have that within the team as we think there is a lot of value from the overlap,” Bell said.
Mine Wealth + Wellbeing also has an asset allocation hub that, aside from its dedicated person, receives a lot of attention from Bell.
“There’s a lot of people who rely on the consultants, whereas our approach is internal now. We have a view that asset allocation is the foundation of the fund and it shouldn’t be outsourced to a consultant.”
“I think most people would agree with that sentiment, but that sentiment is not enough: you really have to be able to populate that with a high quality process.”
He added it took a lot of work to get the processes to an institutional quality to give the Mine Wealth + Wellbeing board comfort to sign off.
“Once you own the process it is not just a once a year review; if you have the tools you can update your forecasts and for your asset classes and sub-asset classes and there is room for more continual change, rather than one-off changes.”