Two of Australia’s largest super funds have considered buying fund managers as they grow inhouse investment teams and look to expand geographically.
Cbus and Aware Super executives told Investment Magazine’s Fiduciary Investors Symposium they would consider purchasing fund managers if the price and governance were right.
Cbus Super chief strategy officer of investments Alexandra West said the fund had looked to global pension funds and their ownership of asset and fund managers as a potential model for overseas expansion.
“These are things that we might certainly look at – indeed Cbus Property is a wholly-owned subsidiary. So in some ways, it’s exactly that model and you’re right, we are a major shareholder of IFM and co-founder of ISPT. So that’s certainly something we consider when we’re thinking about what’s the offshore play,’’ West said.
“It might not be for us, opening an office, hanging out a shingle, it will continue to be investing via IFM and might be investing in other platform businesses with existing offshore presence. I know large Canadian funds that have built or acquired significant stakes in entities investing in debt, real estate or infra – for example, Hayfin, Cubico and QuadReal. And this is how they’ve created their international footprint.”
“These are all things that that we’re thinking about as well,’’ she said.
Scale increases market intel
Aware Super’s deputy chief investment officer, Damien Webb said in addition to driving down investment fees, scale had enabled the fund to be more involved with market intelligence, which led to more direct investment opportunities, particularly in infrastructure and property.
“Rather than wait for transactions that may be expensive, or misaligned to what we’re trying to achieve for our members…we are able to go out and find management teams, provide them with working capital, a pipeline strategy and governance structure and say, go forth.”
Another benefit of Aware Super’s growth from $35 billion in assets under management to $155 billion in the past eight years was moving from an eight-person investment team to a hundred in that time. The aim was to lift investment management teams in house from 35 per cent to 50 per cent by 2025, Webb said, noting that the fund would continue to prioritise its culture.
Webb said the fund’s preferred model was to expand its developed markets footprint with opening offices first in Europe and then potentially North America. This will then provide the fund with the opportunity to source and manage direct transactions in those markets.
Webb noted the challenges of maintaining the fund’s unique culture as it expands globally. “The number one thing that we’ve heard about other people who have opened up offices overseas is that people have come home because the culture hasn’t worked,” he said. “Thus far, we’ve been successful at it, but I think it’s because we’ve worked really hard at it.”
Australian National University associate professor Geoff Warren said the advantages for “mega” Australian funds included keeping down costs and thus fees by building internal teams, access to certain alternatives such as property and infrastructure where economic value can be created through direct ownership, and better resourcing.
Size helps with ESG issues
Size can also make funds more effective at engagement over environmental, social and governance (ESG) issues.
“Scale supports better governance and improved operating scope including systems. For example, effective systems will be needed to solve the retirement problem. Scale will help attract quality staff – people want to work for big firms,’’ Warren said.
On the flipside, capacity constraints in listed assets, coordination issues and maintaining a common culture and purpose were challenges for bigger funds. “You run into complexity and bureaucracy. You might have better systems, but gee, you’ve got to deal with all that complexity,’’ Warren said.
Another challenge with scaling up relates to international expansion. “One of the inevitable things that will have to happen as you go to very large scale is the need to become a global investor, and that ultimately means moving offshore,’’ Warren said.
“It’s an entirely new challenge. [AustralianSuper] is leading the charge at the moment.”
“You have a staffing challenge in operating in overseas markets. You’ve got to attract the right people to work for an Australian super fund [while] building capabilities for success in alternatives including relationships.”
