Fund board members ask a lot of useless questions according to the often-outspoken Jack Gray, a semi-retired investment industry stalwart who has sat atop a range of massive funds in Australia and abroad.

Speaking on Market Narratives, a podcast series hosted by Investment Magazine’s head of institutional content Alex Proimos, Gray said strategy varied little among Australia’s largest superannuation funds and the country would do better with just one or two.

Fund boards “worry obsessively about relative performance,” but their clients “don’t give a damn”, Gray told Proimos.

“When I was a CIO, that was always the first thing they wanted to know,” Gray said. “How have we done relative to ‘AusSuper’ or somebody. ‘Who cares?’ would have been my answer. And the second [question] was ‘What happened in the market today?’ And again I would say ‘I don’t care.’ Asking the right questions is a key thing for these funds but it’s not clear they do.”

Likening superannuation funds to Australia’s big four banks, he said they “don’t really compete… they copy each other. They have different coloured brochures, but there’s no competition there. Competition is a furphy. We are in a business, an industry, where competition is really a pointless thing to worry about.”

Jack Gray is the former co-head of asset allocation at GMO Boston, chief investment officer at SunSuper, executive director at AMP Asset Management, adjunct professor of finance at the Centre for Investment Management Research at Sydney’s University of Technology and director and special advisor to Brookvine.

Gray said a better approach would be to have the government appoint an independent body which appoints the people running one or maybe two large superannuation funds, and this would have a number of advantages. Significantly it would reduce the “waste” of having so many people running the industry.

“You get rid of the relative performance [question] so the pure ideas of investment come through,” Gray said. “And you get rid of a hell of a lot of extra baggage. Do we really need all these people? Do we really need all these funds at the moment?”

But there will still always be scope for smaller funds that are more specialised, he said, and the regulator’s push towards larger funds denies some of the obvious advantages that come from being a smaller fund.

Speaking on the issue of pointless board topics, another is member engagement, he said, confessing he personally never looks at his super account.

“People don’t understand super and it’s not because they’re dumb, it’s because they’re smart,” Gray said. “Why would you want to know much about super? Do you trust the system to do what it’s meant to do? By and large, yeah. And what are you going to do about it? There’s nothing much you can do about it. Engagement is really an empty thing.”

Boards needed to encourage and welcome board dissent, but this was a hard thing to do, particularly when there is a strong individual on the board, Gray said, giving the example of GMO co-founder Jeremy Grantham.

“He encouraged different views, but his intellect on investment was second to none, and he was a great debater so he had very strong arguments against you and in favour of his own view,” Gray said.

He didn’t frame this as a bad thing, however. Investors need to take brave positions knowing they could be wrong, he said.

“That requires a certain temperament and I don’t think many people on boards have the sort of temperament that can deal with that and make tough decisions in the face of uncertainty.”

To listen to the full unedited interview with Jack Gray on the Market Narratives podcast click above or find the series and episode on Apple Podcasts, Google Podcasts or Spotify.

Gray also discusses the questions non-expert board members should be asking, having a diversity of ‘mental models’ among board members, how to encourage and welcome board dissent, and the tension between running a fund as an investment professional and also running it as a business.

Ben Hurley is a journalist and editor with more than a decade of experience in the industry. He has written for The Australian Financial Review, Business Review Weekly, The Guardian and a range of specialised and industry publications.
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