AustralianSuper is on track to hit its target $500 billion in assets by 2026 without the need for a string of mergers, reaching the target through new members voting with their wallets.
New AustralianSuper boss, Paul Schroder, said the $250 billion fund was getting 1,000 new members a day and annual inflows are now $20 billion and rising as the new members are bringing their money with them.
Schroder, who is heading off on a meet-and-greet trip to London, stressed the need for AustralianSuper to stick closely to its culture of “helping members achieve their best financial position in retirement” which, he said, was what had got the fund to the stage it’s at now.
While the external focus is on size, Schroder said: “the game of musical chairs in the industry is coming to an end, the music is about to stop, which may lead to a mad scramble but we don’t have to play that game”.
Mergers not out of the question
This does not mean mergers are out of the question as shown by a recent deal concluded with Club Plus Super and its 60,000 members with $3.2 billion in assets and talks ongoing with LUCRF.
The point is mergers for the sake of it are not necessary and Schroder, while welcoming the consolidation in the sector, can afford to be choosy.
This also minimises his risk.
“At the end of the day in Australia there will be eight big funds, three very big and my aim is for us to be the leader of that group in cultural terms being the simplest with scale,” he added.
Schroder noted one in five Australian households have an AustralianSuper account and members are quick to tell him if the organisation has gone off purpose which ultimately comes down to “performance and trustworthiness”.
“I want to be remembered for my performance in being relentless around purpose, scale and simplicity,” Schroder said.
Early stages of a long-term strategy
The fund is in the early stages of working through its long term strategy with a team including chief operating officer Peter Curtis, strategy chief Sarah Adams and people and culture boss Michele Glover, backed by an external team from Bain.
“Some things need to be the same but we also need to keep changing,” Schroder noted.
The process will take a step forward at April’s annual strategy board meeting.
Schroder said: “my aim is the relentless pursuit of purpose, culture, having the right people and strategy that is simple and clear”.
“My ambition over the next 10 years is to be the leading super fund in the world’s best superannuation system,” he said.
Position of strength
Starting from a position of strength gives him some time to work with.
As Schroder heads to the UK, his investment chief and fellow Collingwood football club member, Mark Delaney, is returning to Australia after a trip to the US and UK.
Delaney, he noted, is set to remain in his job for the mid-to-long term noting he was “energetically engaged in the future”.
Schroder’s London trip is built around “team building, talent connections and keeping channels open”.
He is in an open dialogue with what is known as Maple 8, the big Canadian funds and their Scandinavian and UK equivalents in a process Schroder calls “co-operticion” (co-operation and competition).
Some 55 per cent of AustralianSuper’s assets are offshore and the London office now has about 50 people which will double by next year. In New York, it has just six people but plans are to build that to 100 people by 2024.
Diversified asset group
“Our aim is to help members by getting good exposure to a diversified asset group,” he said.
Earlier this year the fund acquired a 50 per cent stake in British Land’s Canada Water, one of the largest ever regeneration projects in London. British Land sold its 50 per cent stake in the project to AustralianSuper for $527 million.
The deal, like last year’s $1.9 billion Optus towers one, also underlines the fund’s preparedness to do more deals on its own, showcasing its scale and growing expertise.
AustralianSuper has now written down the value of its investments in Russia to zero pending a sale when markets allow.
From the fund’s perspective, its Russian assets had already shrunk from 22 basis points to seven basis points of total funds on the simple fact that it now regards Russia as un-investable.
“The humanitarian consequences are abhorrent,” he said. And from an investment perspective it is now worth nothing with, among other things, MSCI removing the country from its index.
The Federal Government also made its views known but in reality didn’t directly intervene because at the end of the day the fund can invest where it wants.
An investor’s perspective
From an investment perspective, one fact often forgotten he said, was how the world is now one-third less dependent on oil than it was in the 1973 oil crisis. The global economy is more services based .
He added that: “markets rise and fall but over time they rise and $50,000 invested in a balanced fund in 2001 today is worth $220,000″.
Schroder said of investments in crypto currencies that they were of little value because they don’t produce income.
“It’s a little like buying exotic art, you hope the price goes up or down but it’s not something you rely on,” he added.
He did stress the fund was actively looking at the wider digital network saying: “decentralised finance has enormous potential and something all of our divisions are taking a close eye on to see what returns can be gained in [that] space”.
While the investment emphasis may be looking offshore, Schroder stressed the fund was firmly engaged in boosting returns for its Australian members and was committed to Australia with $116 billion in assets and $55 billion invested in Australian equities.
It is concentrating its Australian holdings to around 25 to 30 individual stocks.
Patient and straight talking
Schroder noted the fund was seen by most companies as a highly desirable investor, patient and straight taking, all a long way from the anti-industry fund ideology still evident in sections of the Federal Government.
Direct credit was a big opportunity, he said, and corporate loans are now heading to some $15 billion.
Schroder rejected talk of freezing the super guarantee at 10 per cent saying the system works for the benefit of Australians and Australia over the long term and “the Treasurer has grasped this fact”.
“The reality is, a 20 year old starting saving in super will be spending the money in 70 years time,” he said.
In 2000 there were 5.1 people working for every retired person, now its four people and in 2060 it will be 2.7 people. The economics are clear.
The aged pension now accounts for 2.7 per cent of GDP and in 2060, thanks to superannuation it will more like 2.1 per cent.
Best financial retirement outcome
He also backed the retirement income covenant noting that with 83,000 pensioners and $38 billion in retirement accounts, AustralianSuper now had the scale to work through better products and service members.
“AustralianSuper must ensure you get the best financial returns but members must do their bit and think about how much they save, how much they earn, avoid switching and know how you best protect your savings,” he said.
This is where financial advice comes into it and Schroder said: “unless it becomes easier for people to get advice some people will be missing out”.
AustralianSuper now has 3,000 advisors in its network and Schroder welcomed the government review into advice by Allens lawyer Michelle Levy
“It is a saving and spending system,” he said.
“There are some gaps and we must never miss the fact we want to ensure members achieve their best financial position in retirement,” he added
From AustralianSuper’s perspective, scale is not the issue, so the task for Schroder is simplicity around his focus on delivering better returns for members to help them achieve their best financial position in retirement.
It’s a message he keeps repeating.