CIO of the Year finalist David Macri, of Australian Ethical, is hopeful that recent allocations to the local venture capital sector and healthcare property will boost returns and further prove the worth of the fund’s responsible investment philosophy.
Macri has been chief investment officer at the $2.1 billion retail superannuation and managed funds business since 2012, having joined the investment team in 2009. Prior to that, he worked for Macquarie Securities.
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 in Sydney.
Investment Magazine: What do you believe will prove over time to be the most significant decision you made in 2017?
David Macri: We made several decisions over the course of the year. We made our first ever investments into venture-capital funds. These focus on Australian start-ups in the technology and clean-tech industries. We hope to look back on this decision and feel we had a hand in sparking these local industries to life, and of course generating significant returns for our members and investors.
In 2017, we were also a foundation investor in a new healthcare property fund. Whilst healthcare property is by no means a new segment in the property sector, institutional investors certainly haven’t considered it in the same way as commercial, retail or industrial properties. It will be very satisfying to look back and think that we helped establish healthcare property as the next pillar in property for the institutional investment market, while at the same time contributing to essential healthcare infrastructure with an environmentally sustainable development focus.
We make decisions every day as we ensure all our holdings are invested ethically in companies that are contributing to a sustainable future. I’m convinced that if the global pension industry as a whole considers non-investment issues and begins to act as a universal investor, then we will witness positive change at a dramatic rate. The industry wields a great deal of influence and power and we have a responsibility to do what we can for the future of our planet, and the future of our society as a whole. It is important to remember that in addition to providing our members with higher savings to fund their retirement, we are also helping to shape the world in which our members will be retiring.
I’m motivated by the thought that our substantial growth (we were the fastest-growing super fund in 2016 by both member numbers and FUM, according to the KPMG Super Insights Report 2017) and strong performance track record (our Australian Shares managed fund is a top-quartile performer for all periods greater than two-years ending 31 December 2017) will [convince] other investors to consider incorporating non-traditional investment factors into their decision-making, and pave the way for a more altruistic industry.
IM: What do you expect to pose the biggest threat to your portfolio in 2018?
DM: Whilst we don’t currently invest in international fixed interest, we do have a substantial allocation to the Australian fixed interest asset class. As such, a steep increase in Australian bond yields would negatively affect performance. Also, a bond market correction may trigger a de-rating of the industrials (ex-resources) segment of equity markets globally, which is by far our super fund’s default option’s largest exposure.
What do you expect will be the biggest headwind to meeting your return target over the next five to 10 years?
The biggest headwind to meeting our return targets over the next five to 10 years is the current high valuations in the industrials (ex-resources) segment of developed equity markets, driven by a record low interest rate environment and solid growth expectations. If inflation returns to more normal levels, beyond current expectations, bond yields will move higher and central banks will need to accelerate their rate increases.
The negative effect on equity valuations could be compounded if the central bank action and increasing bond yields cause consumer spending to pull back even further and corporate investment to decline.
How are you repositioning the portfolio to make it more resilient?
Our portfolios have historically always proven resilient. We are committed to our process and remain as disciplined as ever in ensuring we build robust portfolios. The process does lead to our equity portfolios underperforming in strong equity markets, but they more than make up for it when markets inevitably correct.
Aside from investment decisions, what is taking up a lot of your time and focus at the moment?
Much of my time is spent ensuring we have adequate tools and resources in order to continue to deliver performance to our investors and superannuation members. We are continually trying to improve our processes and build systems and screens to support good investment decision-making. The better the tools, the easier it is to make those decisions, so that I have more time to focus on my table tennis (we have an ongoing tournament in the office and the investment team are a competitive bunch)!
About the awards
Other finalists in the CIO of the Year category at the 2018 Conexus Financial Superannuation Awards are Statewide Super’s Con Michalakis, 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.
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. Actuarial and consulting firm Rice Warner assist with quantitative analysis.
The judging panel comprises California State Teachers’ Retirement System chief investment officer Chris Ailman, Fund Executives Association Ltd (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.
“There’s no shortage of commentary or opinions on super fund performance but the strength of this process is the focus on data, which removes a lot of the subjectivity,” CHOICE’s Kirkland says. “At the same time, the growing debate about the importance of effective governance has forced us to bring in some qualitative assessment of factors like this, which can’t be reduced to numbers.”
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.
“APRA views sound governance practices as fundamental to the delivery of value for money outcomes for members,” Rowell says. “I was, therefore, very pleased to see the steps taken by the judging panel this year to enhance the approach to assessing governance practices and give it more weight in determining the winners in various categories.”
Rowell says APRA encourages all trustees to continue to improve their practices and the outcomes delivered for their members.
“Industry awards, such as the Conexus Awards, are one means for helping the industry to do this by identifying better practices in key areas,” she says.
The 2018 Conexus Financial Superannuation Awards are produced with thanks to platinum sponsor AIA Australia and event partner FEAL. All the winners will be announced at a special black-tie event on March 8 at the Ivy Ballroom, Sydney. Tickets are now available. Visit www.conexussuperawards.com.au or contact Emma Brodie via [email protected] or +61 2 9227 5708.