The $42 billion Funds SA is gearing up for the impact of choice in the South Australian government public superannuation system, according to its chief executive Jo Townsend.

The move, which is expected to start later this year, will allow some 200,000 members of Super SA to have their own choice of super funds, increasing pressure on the fund to be as competitive as possible.

Super SA is the biggest single client of state government-backed asset manager Funds SA, which manages the investments for 12 South Australian superannuation funds, institutions, and approved authorities.

“Choice of funds looms large here,” she said.

“It is game changing. For the first time it will be a fully competitive market for Super SA members. We have been working with Super SA for a number of years getting ready for choice of funds.  We need to provide all the support we can to Super SA.”

Most current members of Super SA as well as new public servants will be given the option to choose their own super funds once legislation passed by the South Australian parliament last year comes into effect later this year.

For many years membership of South Australia’s Triple S superannuation scheme, which is administered through Super SA, has been mandatory for public servants.

Move to growth assets

She sees Funds SA’s role as working with Super SA to provide the best possible range of investment products and the communications tools about those investments for its members.

The work so far has included upgrading the allocation to growth assets in the default option for Super SA members.

“We agreed that, over time, we would increase the allocation to growth assets for the default option and we would work on reducing the fees,” she said.

She said Funds SA had already moved to do this, buying more shares when the market was down in 2020 when Covid first hit for Super SA.

“We got the opportunity to do quite a lot of the move to growth assets when the equities markets were down significantly in early 2020,” she said.

“As stressful as it was, it presented us with a good opportunity to reposition some of those investment products at a good time.”

More clients

Townsend has been running Funds SA for the past seven years and its clients have increased from eight to 12 over that period.

“We have 12 clients, four of them are superannuation funds but we have other clients in the insurance and endowment sectors,” she said.

They include SA Police Super, the Adelaide Cemeteries Authority, SA Metropolitan Fire Service Scheme, the SA Ambulance Service Superannuation Scheme, the Legal Services Commission of South Australia, the University of Adelaide, the Motor Accident Commission of South Australia, and the South Australian Government Financing Authority.

“We are a specialist asset manager for South Australia,” she said.

“We will take on any government client which would like to come to us, provided they meet certain criteria.”

It manages money for funds with members in both accumulation and defined benefit schemes.

Tailoring strategies

Townsend said her organisation works with each of its clients to tailor specific investment strategies for them, depending on their needs.

“We work closely with them to build the investment products they offer to their members,” she said.

“We also provide the communications they need to talk to their members around the different aspects of investment arrangements.”

She sees Funds SA as being in a “partnership” arrangement with its clients at a time when the superannuation industry, in particular, is under increasing competitive pressure.

Different career path

Townsend has had a very different career path into the funds management business than many other executives in the sector.

She grew up in Tasmania, leaving school at year ten, completing only the leaving certificate, and then moving to Sydney. She got into the funds management business “by accident,” she said.

She was working for Rothschilds in an administrative position when she decided she wanted to step up in the industry.

She studied part time to do a course for the then Securities Institute of Australia as a precursor for being accepted into university at Sydney’s UTS where she studied maths and finance.

She worked as a boutique fixed income manager for Value Capital Management before going back to Tasmania to work at the state’s Retirement Benefits Fund (RBF) where she finally finished her degree.

“I worked full time and studied part time for ten years,” she said. “My route into this industry was not traditional by any means.”

She then moved back to Sydney, working as an investment officer with NGS Super, before moving up the ranks of REST Industry Super where she worked for seven years.

She was acting chief operating officer at REST before taking over the role as chief executive officer at Funds SA in Adelaide in April 2015.

Period of growth

The organisation has a staff of 60 people, doubling under her leadership and Townsend has steadily increased the inhouse investment capacity of Funds SA.

While it uses a “manager of managers” approach to investing, she has moved to have more control over the fund’s investments by increasing its investment staff from seven to 20.

“We have been looking across the portfolio and within all the different asset classes to see where we can build additional capabilities which will help us not only increase risk adjusted returns but help us to control fees going forward.”

Under her leadership, the organisation has seen an increasing delegation of investment decisions from the board to the management, but she says she is not looking at a big move towards internalisation of investing.

“Manager of managers”

“We are not looking at building large teams doing direct investing on their own. We don’t think it is an area where we have an advantage,” she said.

But it has taken the decision to co-invest in some private equity deals where its managers are already investing.

“We will potentially invest in slices of individual deals alongside a fund, subject to due diligence,” she said.

But she won’t reveal which private equity deals these have been, the fund does not make them public.

She describes it as being a “step beyond just outsourcing everything in a ‘manager of managers’ approach”.

“It is not full internalisation, but it is a direction we have been moving in over the past few years.”

Wide investment mandate

Townsend said the move to internal investment management by larger super funds has benefitted Funds SA giving it access to some fund managers which it would otherwise have not been able to deal with.

She said the fund acts like any other fund manager aiming to get the best returns for its clients, but just happens to be based in Adelaide.

“We have got a pretty wide mandate in terms of where we can invest. We are just like a super fund from that perspective,” she said.

While its clients are all institutions with long term investment horizons, she says some have different criteria with some clients being able to invest more in private equity.

Active management

Funds SA is also a strong proponent of active management.

“We believe that active management can deliver better risk adjusted returns,” she said.

But unlike some other state-based investment funds, it cannot accept private clients or those outside the South Australian public sector and those allowed by legislation.

While the push in the superannuation sector has been for consolidation to get the benefits of economies of scale, Townsend said she is happy with the size of Funds SA.

Advantages of scale

“We don’t see any problems necessarily with the scale we have got,” she said. “What is going on in the industry does create some opportunities for us. A lot of the big funds are internalising and terminating mandates with some good investment managers we might not have been able to get access to,” she says.

The organisation is also paying increasing attention to issues of climate change and other parts of the ESG equation having signed up for the UN backed Principles of Responsible Investment (UNPRI).

“ESG conversations these days are now part of looking at every investment opportunity,” she said.

“They are a normal part of doing due diligence.”

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