Sunsuper’s head of alternatives Bruce Tomlinson said the $70 billion fund is looking to forge closer relationships with fewer managers and wants to pay them nothing while they’re at it.

He said his team are very active in the single asset co-investment space and they want to do more because they have greater transparency and control and ultimately get much better terms. They’ve even found managers who have agreed to zero fees.

“It’s something that we think is appropriate in certain circumstances where our capital is affecting a certain outcome,” Tomlinson said of no fees at the Investment Magazine’s Absolute Returns Conference in Sydney.  “It’s our capital so we deserve to set the terms and we are finding some, albeit a limited set of partners, who are happy to work with us on that basis.”

The division head said because Sunsuper’s assets are expected to double in the next five years, they have to evolve their investment strategy and “be thinking and acting differently” than in the past. Whereas once they were among Australia’s biggest investors in hedge funds, the growth in assets has seen them move away from liquid hedge fund type allocations to what Tomlinson described as an “eclectic, idiosyncratic alternative strategy program.”

The super fund has also heavily invested in bank replacement type strategies, where they have stepped in to provide capital where banks can no longer lend post the global financial crisis, including in real estate, energy and transportation. He’s steering clear of macro and public market trading strategies where he thinks the returns are “inferior and the fees haven’t come down enough.” They are also doing less senior lending as spreads have tightened from the abundance of capital chasing the deals.

Tomlinson joined the Brisbane-industry fund in 2007 from AMP Capital to set up their hedge fund and alternative strategies program. He has since dropped the hedge fund reference to try and separate his team from the negative connotations associated with the industry. They first started looking for new co-invest partners back in 2017 and have been shifting a chunk of capital to private markets over the last six or seven years which now makes up 50 per cent in alternative strategies.

He said while they still focus on absolute returns, they look for investment opportunities that fall between the cracks of the “narrowly-defined asset class buckets.” And the more complex the better too, because it means there is less capital chasing it and a higher return.

They generally target high single digit net returns in the credit space but will invest up and down the risk curve depending on the opportunity and the external manager, he told delegates. As for investing in equity, he said while they won’t shy away it has to be appropriately priced.

Tomlinson said while they have always been a global investor, he and his colleague Laurence Marshbaum spend up to eight months a year out of the office trying to forge more bespoke relationships with managers and be proactive about creating opportunities in which to invest.

“We are saying to them don’t syndicate that mandate to another private credit or special credit hedge fund manager, come to us instead,” he said. “We are a much better partner than those buggers ever will be. We have to make the case to them. It’s unusual for them but we are finding more partners who are prepared to do that.”

Tomlinson said while they are still only in the “first or second innings” on their path of working with fewer managers, as a large investor and a fiduciary they had to “step up” and reduce the intermediation and frictional costs.

As for bringing investment teams in house, he said unlike many of their peers, Sunsuper has no plans to build a cash equity desk and trade public market equities. But in alternatives, he said his 40-people team are already doing a lot of “notional direct investing.”

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