Once a year, for two weeks, the general manager of investments for AustSafe Super, Simon Mather, heads overseas on a research tour with the fund’s asset consultant, JANA. Working closely with JANA is critical for the $2.2 billion super fund, whose dedicated investment team consists of Mather and just one other full-time employee.
This year, Mather and JANA executive director John Coombe kicked off their tour with fund manager meetings in Los Angeles, then crossed the US via Des Moines, Iowa, and Milwaukee, Wisconsin, on the shore of Lake Michigan, before meetings in New York, Boston and finally in Philadelphia, Pennsylvania. Mather says the trip was “not only to review our current managers, but also to [find] new opportunities across different asset classes”.
The annual research trip is one aspect of what Mather says is an unusual relationship between the fund, its investment committee and its consultants. A small fund with limited resources is restricted in the number of relationships it can manage effectively. Mather says the fund prefers to make “meaningful allocations” to a relatively small number of managers or strategies, but “the asset consultant is the key relationship”.
“For a number of years the fund, and I agree with this, has had a relationship with the asset consultant that’s an extension of us – it’s more a partnership,” he says. “Research topics and manager selection are more of a two-way street between us and the asset consultant. We like to think of ourselves as partners or working quite closely together.”
It’s how a small, Brisbane-based fund representing farmers and employees in rural and regional Australia continues to mix it up with bigger competitors, and why its line-up of investments includes vehicles like the Delaware Investments Emerging Markets Fund and Origin Global Smaller Companies Fund in international equities, and Siguler Guff Small Buyout Opportunities Fund II LP and Crown Europe Middle Market III PLC Class A in alternatives.
JANA’s Coombe says the 2017 research trip involved meetings with new alternative-credit and US property managers. Mather says face-to-face meetings are critical for monitoring existing managers and assessing potential new managers.
“It’s making sure we’ve got as much information as possible, making sure the investment committee is comfortable with any decisions, or potential decisions, that we’re making; [and conducting] due diligence on the manager, both at the investment level and at the operational level,” he says.
Mather adds that he and JANA jointly develop new investment ideas, or find new managers and strategies, and the best ideas are taken to the fund’s investment committee, headed by Henry Smerdon, who is also chair of the AustSafe board and a former under secretary of the Queensland Treasury Department.
“The investment committee will then question that, and in most instances we’ll bring the one or two managers that we’re recommending in to meet the investment committee,” he says. “We’re looking for new strategies that can add meaningful returns to our fund. Being a small fund, we have to be across every asset class from an investment point of view. That’s another reason we use an asset consultant and leverage the people they have internally dedicated to asset classes. We just don’t have the time to be able to do that internally.”
Coombe says JANA’s relationship with AustSafe is unusual for how closely the fund wants it to work on researching investments. AustSafe foots the bill for JANA’s attendance on the annual research tour.
“In a lot of funds, the investment guy goes off on his own and they don’t usually involve the asset consultant,” Coombe says. “But here, they pay for me to go for two weeks overseas and be part of the whole thing. So they are seeing the things that JANA sees that can add value to the fund.”
The relationship has developed as it has, simply because AustSafe has facilitated it, Coombe says. JANA does not undertake similar trips with any other funds.
“They have always wanted to be ahead, in terms of new ideas,” Coombe says. “It’s unique.”
Meet monthly, act quickly
An agile and well-informed investment committee is a crucial support to Mather and to the relationship with JANA. At AustSafe, he says, the committee meets monthly and moves quickly.
“I have always found the investment committee has been very open to listening to new ideas, and has supported the internal investment team in looking for interesting strategies that we believe will add value for our members,” he says.
AustSafe was named Small Fund of the Year in the 2017 Conexus Financial Superannuation Awards in March, as the best fund with assets of less than $5 billion. In presenting the award to Mather on the night, award judging committee member and Fund Executives Association Ltd chief executive Joanna Davison said AustSafe stood out for its investment performance and for forward-looking estimates of returns for members in its default option.
Mather says he believes a relatively small fund can gain a performance advantage by moving swiftly when it finds a manager or a strategy is not working as expected. He says AustSafe takes a “succeed or fail fast” approach and will cut a manager or strategy if it fails to meet expectations. But identifying failure requires context and an understanding of whether poor performance is due to environmental or more fundamental issues.
“One thing we talk about with the investment committee, before we even make an investment decision, is what sort
of environment does this work in or not work in?” Mather explains.
He says environmental issues can include the underperformance of a certain style of management. When value managers were underperforming, the investment committee knew why.
“That’s a very important part,” he says. “Making a redemption or selling a strategy [can be] very difficult – a situation where you hang on and you hang on. But if you’ve lost confidence or you know they’re not performing as they should be, then it’s time to make a decision.”
Advantages to being small
Mather says AustSafe is able to take advantage of investment opportunities that larger funds wouldn’t even bother with.
“We can still make meaningful allocations, and the outcomes actually make a difference,” he says.
For example, Mather says AustSafe and JANA identified a new Australian small-cap manager with such limited capacity that it would not have been worth it for larger funds to investigate the opportunity.
That manager was Ophir Asset Management, a Sydney-based boutique founded by ex-Paradice Investment Management portfolio managers Andrew Mitchell and Stephen Ng. From its launch in August 2012 to April 30 this year, the Ophir Opportunities Fund returned 326 per cent.
“Being a $2.2 billion super fund, a $40 million allocation is still a meaningful allocation for us,” Mather says.
The JANA relationship came to the fore with Ophir as well. AustSafe was already a significant investor in Paradice funds and Coombe says when Mitchell and Ng left, JANA monitored the pair for a couple of years before recommending that AustSafe back the new venture.
Coombe says this is consistent with a long-standing philosophy that led AustSafe to invest with Paradice itself in its early stages, and Maple-Brown Abbott before that.
Mather says small super funds don’t have the same power as large ones to negotiate lower fees or cut other costs, but with JANA’s input, AustSafe has been proactive at investing in early-stage managers who are prepared to be competitive on fees.
And he adds that efficiency gains don’t come only from growing assets.
“It’s to do with your membership base as well,” he explains. “The business has fixed costs, and the more members you
have to spread those costs across, the better. It’s not as simple as how big you are. It’s about sustainability. Are you still cashflow positive? Each year, are you still getting cash in the door, or are you in a position where your
fund is gradually winding down?”
Almost all – 99.5 per cent – of AustSafe’s members are in accumulation phase, “so we’re a fund that is still cashflow positive”, Mather says. “I don’t like thinking just about size. “It’s more than your assets under management, but obviously…assets under management do help in negotiating fees.”
A road less travelled
Mather’s path to investment management wasn’t direct, nor was it obvious. He graduated from the University of Greenwich in London with a bachelor of science degree and a major in geology. But when his studies ended in 1996, employment opportunities were scarce in the oil and gas industry.
A conversation with a friend led to a role at Bank of America in London.
“In that first six months I spent with Bank of America, I quite enjoyed that sort of environment,” he says.
He was drawn to the analytical side of the job, an attraction that was unsurprising to him because “probably my strengths through schooling and university were my analytical skills and dealing with numbers”.
It was a role he enjoyed before moving from Bank of America to Jupiter Asset Management, still in London, where he found himself working in the private client department.
“The things I liked about that were, obviously, the investment side of it, but also dealing with people’s assets and trying, in some cases, to help them improve their retirement outcome,” he says.
In May 2005, Mather departed the UK for Australia, and after stints at Tactical Global Management and Public Trust of Queensland, he spent a bit more than a year as an analyst with QSuper, followed by about three-and-a-half years as manager of investments for Energy Super, before joining AustSafe in 2012.
In his current role, Mather has only one direct team member, “But in the wider organisation, I work very closely with the CEO and we have an internal compliance and finance team, which is another area that provides an incredible amount of support.”
Mather says a strong team is critical to help a small fund comply with the seemingly never-ending stream of new regulations. Being smaller also means he has an appreciation of other areas of the fund’s operations.
“That’s one of the things I really quite like about working for a smaller fund – it gives you exposure to all parts of the business,” he says. “While sometimes I find [them] quite frustrating, some of those parts of the business, it gives me a good grounding. If we’re thinking about making some changes to asset allocation, I’m aware of what other things need to be done prior to doing it.”
AustSafe’s far-flung membership means it needs representatives based in regional areas and living near members. However, Mather says the concerns and interests of a rural constituency have little impact on the task of managing the fund’s assets.
Keeping a clear head
Managing money takes clarity of thought even at the best of times, but with the world entering uncharted waters, especially on the political front, it’s a particularly useful characteristic. Mather believes he has a natural analytical bent,
but it was honed at Jupiter, where he managed high-net-worth client portfolios and where those clients would often phone him with stock suggestions.
“You knew they were emotionally attached or emotionally involved in it,” he says. “And I think that helped me, particularly back then, learn to just step away, and look at it from a pragmatic point of view, as opposed to falling in love with something and holding the stock or the strategy for too long.”
When the outlook is uncertain, Mather says, the answer is to be armed with as much relevant information as possible to underpin decisions. This is another area where he relies heavily on the fund’s asset consultant.
“Talking to other investors is quite an important thing we’ve done a few times, especially where a strategy has been a bit different to what we’re used to,” Mather says. “It’s making sure we’ve got as much information as possible, making sure the investment committee is comfortable with any decisions, or potential decisions, that we’re making, and [performing] due diligence on the manager, both at the investment level and the operational level.”
Mather says that while the ultimate aim of managing any superannuation fund is relatively simple – to maximise each member’s retirement benefit – complexity and the pace of change make the job challenging.
“This year is going to be very interesting as Trump’s presidency plays out, and [we see what] support he gets,” Mather says. “It’s one of the reasons our research trip this year was to the US. I don’t think we’re going to find out any particular secrets, but we’ll [learn] how the American people – particularly our investment managers – are responding to his policies, and what sort of opportunities that’s potentially throwing up that we can take advantage of.”
general manager, investments
Since September 2012
June 2009 – September 2012: Energy Super, manager of investments
June 2008 – June 2009: QSuper, senior investment analyst
May 2006 – June 2008: Tactical Global Management, manager
of performance measurement
August 2005 – May 2006: Public Trust of Queensland,
technical services manager
February 1999 – May 2005: Jupiter Asset Management, investment manager
September 1998 – February 1999: Bank of America, analyst
AUSTSAFE SUPER FUND PROFILE
Number of members: 106,739*
Average account balance: $19,551*
Proportion of members in accumulation: 99.5 per cent
Total funds under management: $2.2 billion
Proportion of funds managed internally: 7 per cent
Total staff: about 26
Investment team staff: 2
Chief executive: Craig Stevens
Chair/investment committee chair:
*as at March 31, 2017
|Asset class||Allocation (%)||Range
Source: AustSafe Super as at March 31, 2017
AustSafe Super historical performance v. benchmark
|Time frame||Fund return (%pa)||benchmark (%pa)|