CIO of the Year finalist Statewide Super’s Con Michalakis says getting the right people and culture in place is likely to be the biggest driver of success in the difficult markets ahead.

Having expanded the Statewide Super investment team in 2017, Michalakis is now focused on bringing them together to strengthen the portfolio and find ways to exploit niche opportunities.

Meanwhile, he is spending more time helping members understand the risks that come with markets.

Michalakis has been CIO at the $7 billion Adelaide-based super fund since 2008, prior to which he was based in New York with Pzena Investment Management.

He is one of five finalists in the running for CIO of the Year at the 2018 Conexus Financial Superannuation Awards. Conexus Financial is the publisher of Investment Magazine, which will feature Q&As with all the finalists ahead of the announcement of the winners at a special black-tie event on March 8 at the Ivy Ballroom, Sydney.

Investment Magazine: What do you believe will prove over time to be the most significant decision you made in 2017?

Con Michalakis: I believe the most significant decision in 2017 was hiring two new team members, adding an independent investment committee member and a new chair of the investment committee.

Susannah Lock and Daniel Dujmovic joined the Statewide Super investment team and add actuarial, quant, legal and accounting backgrounds. David Holston joined the board and chairs the investment committee. He is a seasoned asset consultant from JANA and previously ran a super fund. We also were joined by Sandi Orleow as an independent investment committee member. Sandi brings valuable asset consulting, investment management and professional director experience.

I have found that people matter more now than ever. Investment decisions and asset allocation calls are part of the job; however, it’s the addition of these individuals that will prove to be the most important long-term impact for Statewide Super.

Our senior internal investment managers have also taken on greater responsibility in terms of making calls and taking ownership of their key areas. Team culture and timely decision making is a key issue that we strive for.

IM: What do you expect to pose the biggest threat to your portfolio in 2018?

CM: The biggest threat is an unexpected event, be it geopolitical or other, that severely affects performance. This is eternal angst, but due to the fact that we’ve had such a benign and good investment-returning environment lately the chance of a drawdown is expected to be higher.

We are in a long economic cycle and asset prices are expensive. This is about the time investors make mistakes or companies might do something silly due to the fear of missing out on ‘growth’. As owners of these assets, we have to remain vigilant to try to ensure that there is no destruction in shareholder capital or misalignment of risk.

What do you expect to be the biggest headwind to meeting your return target over the next five to 10 years?

The biggest headwind to meeting our return targets will be to meet investment objectives for the multi-asset class options and match member expectations for returns. I’d also suggest that our members consider appropriate assets that can be used for income in retirement. People have got used to the double-digit returns and lack of volatility – but, as investment cycles demonstrate, this won’t last forever. History tells us that it can spiral into negative feedback loops and then amplify into something destructive.

How are you repositioning the portfolio to make it more resilient?

Given our concerns about lack of value across many asset classes, we have sought to diversify across asset  classes, increase our exposure to alternative investments, and increase cash a little.

Within equities, we have increased our exposure to value-style managers. We are, basically, trying to trade off long-term returns against greater volatility plus meeting investment objectives. This is not an easy task! But diversification and trying to exploit niche opportunities (given our size) offers some benefit.  We’ve added to niche opportunities from special situations in credit and absolute return structures.

Aside from investment decisions, what is taking up much of your time and focus at the moment?

We have a good structure, in that I can focus on investments, the team and clients. Therefore, other than investments, the rest of my time is focused on the investment team, internal leadership as part of Statewide Super’s executive team, and meeting with members. The biggest focus, other than investments, is developing the team (which I’m part of) and making sure members get access to our views and thoughts about their super.

About the awards

Other finalists in the CIO of the Year category at the 2018 Conexus Financial Superannuation Awards are Australian Ethical’s David Macri, AustralianSuper’s Mark Delaney, MLC’s Jonathan Armitage, and Sunsuper’s Ian Patrick.

The Conexus Financial Superannuation Awards recognise excellence in the industry and aim to encourage super funds to raise the bar in all aspects of their operations. The focus of the awards is to honour funds that offer products and services that will ultimately lead to better retirement outcome for members.

Australian Prudential Regulation Authority deputy chair Helen Rowell is a special adviser to the judging committee, which remains the only truly independent awards panel in the sector. For the 2018 awards, it has broad representation from all areas of the industry – including the retail and industry fund sectors – and consumer representation. This is complemented by the perspectives of two offshore chief investment officers.

The judging panel comprises CalSTRS chief investment officer Chris Ailman, FEAL chief executive Joanna Davison, CHOICE chief executive Alan Kirkland, Financial Services Council chief executive Sally Loane, Rice Warner chief executive Michael Rice, and former minister for financial services and superannuation, the Hon. Bernie Ripoll.

While there are many other awards nights on the industry calendar, the Conexus Financial Superannuation Awards are unique in that they are not aligned to a research or ratings house, and do not charge funds to participate.

The 2018 Conexus Financial Superannuation Awards are produced with thanks to platinum sponsor AIA Australia and event partner Fund Executives Association Ltd. All the winners will be announced at a special black-tie event on March 8 at the Ivy Ballroom, Sydney. Tickets are now available. To book, click here.

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