Chief Investment Officers of super funds with a combined $350 billion under management, have contrasting strategies to tackle regulation, investment and performance in 2022.
AMP’s Anna Shelley, UniSuper’s John Pearce and Damian Graham of Aware Super say regulatory changes to the industry brought about by the Productivity Commission had supercharged changes.
Opening the discussion at Investment Magazine’ Fiduciary Investors Symposium, Shelley said AMP will outsource investment management and simplify its product offerings in response to regulatory changes.
AMP Capital demerges early next year and will sell its global and fixed income business to Macquarie Asset Management and its Multi-Assets Group transfers to AMP’s wealth management business, she said.
Legacy products
“The regulatory change has been particularly challenging for retail organisations because the competitive advantage back in the day was to offer the broadest choice possible,’’ Shelley said.
“We find performance tests challenging because we have 170 products.”
AMP’s legacy products “should have been cleaned up” but there wasn’t the impetus to invest millions to do so, she maintained.
“The one thing about the performance test is that it’s definitely put a bomb under the retail funds, we’re running the ruler over all those products,’’ she said.
“Performance has suffered from having a range of those products. It’s taken a leaf out of the industry fund model to have a clear core group of products that are able to compete.
“We’re at that stage of having all external management. Right now, we need to focus, get the products right, get our fees down so we can compete and survive.”
In contrast, Aware Super – the result of a merger of First State, VicSuper and WA Super, aims to continue growing through mergers which will create complexity for its investment management team, said CIO Damian Graham.
Complexity as an advantage
The fund engaged consultancy McKinsey to develop a five-year strategy which found some complexity was a competitive advantage in a crowded market, Graham said.
“The way we’re investing – internalisation as part of the portfolio, infrastructure and property, an internal macro strategy-style offering – those sorts of things are slightly more at the complex end but that’s a better way to apply risk where you want to be different,’’ he said.
The fund is investing in greenfield infrastructure and social housing, less in retail, with its property portfolio makeup of 35 per cent industrial, 30 per cent residential and less than 12 per cent in retail and some in office.
“That’s an active position for us. Do you think we can add value? Yes we’re happy to build greenfield assets rather than buy,’’ he said.
“‘It is that type of approach and how do we find a way to be different where we can compete. What we’re trying to do also is reduce where we don’t want to be different or we don’t have a conviction, trying to close down those areas.”
Energised growth
Aware’s aim is to grow from $160 billion to $250 billion in funds under management in four years, energised by mergers, with private market investment managers around the world in different locations, Graham said.
Aware expects to double its portfolio manager workforce to 200 as it increases its areas of excellence around real income and growth assets and supporting teams on property infrastructure, cash and trading.
Meanwhile, award-winning fund UniSuper, which announced its core strategy of choice, ESG and retirement products, has inhouse management experience that was a competitive point of difference, according to its CIO John Pearce.
With industry heavyweights Chris Cuffe, Mark Armour and Felicity Gates among its investment committee, the fund runs a significant inhouse asset management business, Pearce said.
Governance is important
“It’s not simply a case of a board saying: ’we better pay higher remuneration and get the best people and away we go’. It’s governance structures and governance mindset that’s what’s really important,’’ Pearce says.
With more than 500,000 members and more than $100 billion in funds under management, significant fallout expected for its university sector members was not as bad as predicted while opening up to the public this year meant inflows have been “really strong”, Pearce said.
On a macroeconomic view, Pearce said bonds have become irrelevant for funds to match pension liabilities.
“If you started matching liability you would guarantee insolvency down the track,’’ he said.
“There was no other option but to risk it. That’s what we’ve done and that’s what the central banks want us to do. To take more risk.”
The question of crypto
In terms of digital and cryptocurrency strategies, Pearce says there was no “crypto seeping into UniSuper portfolios”.
“We’ve now got a $3 trillion market with no adult supervision and its definitely in need of that. The fundamental basis of crypto is flawed. Supply in a virtual world by faceless people and how carbon inefficient the transactions are costing,’’ Pearce said.
However blockchain, the basis of cryptocurrencies, was “the real deal” and a reason why UniSUper is the largest shareholder in the ASX, a blockchain pioneer, he said.
Inflation
The direction of inflation was also front of mind at UniSuper.
“The questions that investment managers have to address will be the bond market and the central banks’ response to different scenarios. That’s the debate we’re having at UniSuper,” Pearce said.
“I find it hard, being an old timer that’s lived through inflationary periods, to hold bonds at two per cent and inflation’s travelling at four.
“What I’m saying is we’ll be a lot wiser by the end of the second quarter next year but at the moment we’re playing things from the short side.”