CIO of the Year finalist MLC’s Jonathan Armitage is building out his team to bring control of more investment decisions in-house as the long-term stability of markets starts to look more vulnerable.
Armitage has held the role of chief investment officer at MLC, National Australia Bank’s superannuation and wealth-management division, since 2013.
He is one of five finalists 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?
Jonathan Armitage: In 2017, we expanded our investment teams to explore new ways to construct our portfolios and deliver outcomes for investors. We believe it is becoming more important to look at exposures that go beyond the traditional building blocks. Over the year, we brought the management of a portion of our Australian equities portfolio into our asset allocation team. This allowed us to align our top-down view with the construction of the underlying portfolio and build an Australian equities portfolio that minimises the risk of a market dominated by two sectors.
IM: What do you expect to pose the biggest threat to your portfolio in 2018?
JA: There are two broad sources of potential threat: irrational market behaviour and a shock to the real economy. One threat of unsustainably strong equity markets is that investors may be disappointed that returns, while OK in absolute terms, are not higher compared with other investment options. This can lead to them taking on more risk than ultimately turns out to be prudent.
The second threat has a more obvious negative impact on return outcomes for investors. Consensus expectations are for continued synchronised global growth and low inflation; however, a significant vulnerability remains in the form of excessive levels of debt. This threat lay behind the global financial crisis and remains unresolved.
What do you expect will be the biggest headwind to meeting your return target over the next five to 10 years?
Since the late 1980s, there have been a number of booms that have inevitably led to a bust. Each bust has brought ever more innovative and accommodating monetary policy, creating a ‘debt super-cycle’ in which excesses don’t get cleaned out and debt progressively ratchets up relative to GDP. This can create two problems for investors.
Firstly, there is an emergent consensus that monetary policy has reached the limits of its power and needs to be wound back. Secondly, social discontent is getting political attention and reinforcing the need for policy changes to be made. We may be witnessing the beginning of the end of an era. If so, expect this to be disruptive for markets, which have become used to very low interest rates and easy money.
How are you repositioning the portfolio to make it more resilient?
A significant challenge in the current investment environment is the inability of traditional assets to help ensure a portfolio’s return is resilient to different outcomes. To deal with this, we are making more use of our derivatives capability to insulate our portfolios against the most challenging environments. The current low-volatility environment affords us some flexibility in this regard. Options allow us to protect against the most challenging outcomes – where valuations disconnect from fundamentals – without making significant changes to the defensive positions of the underlying portfolios.
Aside from investment decisions, what is taking up a lot of your time and focus at the moment?
We have a great responsibility to our customers, who have trusted us to help them achieve their investment goals. While delivering returns is a significant part of this, ensuring we are producing the right communications and engagement tools to bring our customers closer to their investments is also key. Providing customers with the right information in a transparent and easy to understand way is paramount to helping them both better understand their investments and make prudent decisions.
Also, in the current challenging return environment, it is essential that our investment teams have the right culture married with the right technical skill sets. Providing an environment that is open, collegiate, sceptical but not dogmatic and, at the same time, guards against groupthink and consensus views, is another key focus.
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, Australian Ethical’s David Macri, 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 CalSTRS chief investment officer Chris Ailman, Fund Executives Association Ltd 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.