In the final stages of consolidating the investment teams and portfolios of MTAA Super and Tasplan to form the newly branded Spirit Super by the end of March, MTAA CIO Ross Barry has both a broad appreciation as well as a specific deference to how investment performance will be measured and benchmarked in the future.
Broadly, Barry applauds the simplicity of the new performance benchmark proposed by the government’s Your Future, Your Super reforms. He also adds that having a binding performance test pushes funds to consider more deeply the part each allocation plays towards risk and return.
“It does motivate you to think carefully about everything in your portfolio and its contribution to value add over the long term. The logic of the reforms I don’t fault,” he says.
MTAA’s MySuper balanced fund, which will be the enduring MySuper product following the consolidation with Tasplan, is among the top performing funds relative to the listed SAA benchmark, reporting an excess return of 1.26 per cent, according to APRA’s latest December heatmap numbers.
Thinking laterally and more deeply about the makeup and composition of portfolios is a familiar headspace for Barry, who until October last year was head of systematic and impact investing with First State (now Aware) Super. Barry led a major initiative towards the end of his time at First State Super in which the fund forged a strategic partnership with HSBC Global Asset Management to develop an internal systematic investment capability in Australian and global shares.
Barry’s experience at First State Super managing the HSBC partnership sharpened his focus on what funds should insource and outsource and how they work with partners, he says.
“We would only seek to internalise something we thought we could do as well or better than we can buy in the market – for the most part there are skillful managers and providers who can do things more cost effectively than we can and so we’d prefer to partner more closely with those groups,” Barry says during an interview with Investment Magazine.
While Barry and his team remain in the process of evaluating the go forward investment approach of the new merged entity he is reluctant to be specific about final decisions on agency relationships and investment team combinations. However he does highlight the importance of bringing greater focus on taking responsibility for outcomes into the fund’s internal investment team and the investment committee.
“This [focus on taking responsibility for outcomes] approach fits in with what the regulator wants because it makes value add around a strategic benchmark should be a key objective of funds,” Barry describes.
“We are trying to create a little more agency or ownership of investment outcomes. That means strong governance and accountability to deliver on clearly defined performance goals,” he says.
“Across the industry value chain, the investment team and committee are the only ones who can see the whole picture of the members outcome, so that’s why we are the only ones that need to take responsibility for the outcome,” Barry says.
Eye on the target
Barry expresses his deference to the government’s proposed performance test, acknowledging that if risk budgets are taken up by basis risk in property and infrastructure portfolios, then funds won’t have any room left to take active stock selection or dynamic asset allocation risk and still have a chance of avoiding a blowout against the listed SAA reference portfolio.
Implementation of the government’s plan could be improved by allowing funds to select from a broader range of benchmarks in each asset class that reflects their long-term approach to portfolio construction depending on funds’ strategic intention for holding asset, he adds.
“If it’s a strategic decision for a fund to hold unlisted asset then that should probably be reflected in the benchmark used,” Barry says.
Inadvertently dialing up or down the level of active implementation risk can undermine a fund’s ability to meet its longer-term objectives – it’s not a position any fund wants to find itself in, Barry emphasises.
“It’s like stop loss trading or opening up the risk budget after a run of good performance. I think it’s a flawed approach, it undermines the longer-term objectives,” Barry notes in relation to funds which might need to change tack to avoid underperforming the benchmark performance hurdle.
“I think even if you are under performing the longer term strategic benchmark in the short term, you still really need to keep your eye on the longer-term goals,” he says.