First State Super acting chief investment officer Damian Graham has been permanently appointed to the role. He plans to insource more investments in 2017.

“I think there is a big opportunity at First State Super to build on the current strategy and bring more resources in-house,” Graham told Investment Magazine.

He plans to begin allocating capital to an internally managed “smart beta style factor strategy” invested in domestic equities, both large caps and small caps, before the end of 2017.

“We may then build up to a broader offshore portfolio over time, but we won’t rush anything,” he said.

A series of direct strategic investments in Australian companies is also on the horizon for the year ahead.

“We have already researched a number of companies we think are really interesting, both unlisted businesses coming to market and some that are already listed, which we will be looking at more closely,” Graham said.

He said the strategy was to take a “long-term buy and hold approach” with “significant stakes of around 5 per cent” in a selection of local companies.

 

Expect more insourcing

First State Super already has some of its cash management, real estate, infrastructure, and overlay strategies managed in-house.

Graham’s appointment was announced by the $75 billion default fund for NSW public servants on Monday December 5, 2016.

He had been acting in the role since August 2016, following the announcement former First State Super CIO Richard Brandweiner planned to leave the fund.

Previously Graham was CIO of StatePlus (formerly State Super Financial Services), where he managed a $17.5 billion investment portfolio.

First State Super bought StatePlus in May 2016, creating a combined portfolio of more than $75 billion, managed on behalf of roughly 800,000 members.

Graham tipped strong inflows would see the total portfolio hit $100 billion over the next couple of years, creating greater economies of scale to pursue more investment insourcing.

First State Super chief executive Michael Dwyer described Graham as “a leader amongst a new vanguard of investment chief’s that are over-seeing a shift amongst major institutional investors to insource senior investment expertise and make direct investments on behalf of its members”.

More real estate and private market deals should also be expected under his stewardship.

“Whether in partnership with investment managers or as a direct investor, First State Super will continue to be an active owner,” Graham said.

In recent years First State Super has contributed to the development of several major infrastructure projects including Sydney’s new International Convention Centre, the Barangaroo business precinct, and has helped to establish new hospitals in Bendigo and on the Sunshine Coast.

 

StatePlus portfolio still segregated

The First State Super and StatePlus investment portfolios are still being managed separately, and it is yet to be determined how or when they might be combined.

“It is still a work in progress where we will land on combining the portfolios,” Graham said.

“The two cohorts have very different needs, so the portfolios have been designed differently.”

First State Super members are typically accumulation phase members aged in their 30s and 40s, while StatePlus members are typically advised retirees with relatively high balances.

StatePlus head investment strategist Michael Winchester will  assume more responsibility for that portfolio following Graham’s promotion to First State Super CIO.

 

Focus on impact

First State Super is keen to position itself in the market as a super fund with a social conscience.

“As one of Australia’s largest investors we can make a real difference through the way we invest,” Dwyer said.

“Our first priority is to deliver strong financial returns to members. We also want to contribute to the quality of the community that our members will retire into by investing in ways that are sustainable, generate jobs, foster innovation and contribute to a more productive economy.”

Brandweiner finished up in November to take on a new role as a partner at LeapFrog Investments, a micro-finance and insurance company focused on emerging markets that describes itself as a “social impact” investment firm.

At the time of Brandweiner’s resignation Dwyer flagged First State Super was open to looking at institutional grade impact investment deals.

“We’ve had some interactions with LeapFrog but nothing formal yet, we are interested in understanding their capabilities and seeing where it can go,” Graham said.

Prior to his joining StatePlus in 2012 Graham spent 11 years at Macquarie Group, including the last five as head of investments for Macquarie Private Portfolio Management.

Before that he spent five years as a business development manager for JPMorgan and Citigroup. Graham began his career at Norwich Investment Management, where he was head of retail investment research.

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