HESTA’s ambitious strategy to combine direct investing, a larger internal investment team and good rapport with external asset managers, is tied to its responsible investment focus, says chief investment officer Sonya Sawtell-Rickson.
The health and community services super fund with more than 930,000 members, 80 per cent women, and $68 billion in assets, has completed the first phase of its internalisation, Sawtell-Rickson told Investment Magazine’s Fiduciary Investment Symposium.
“Initially, we really focused on building whole-of-fund capability, building a more enhanced trading capability, building an direct Australian equities team, and building our enhanced unlisted program,’’ she said.
“We’ve been setting ourselves up to do more co-investment and co-underwriting with some of our big partners, and then looking to move towards Australian fixed interest and cash.”
Armed with strong investment beliefs, HESTA aims for strong partnerships with global fund managers. HESTA also wants to internalise teams that could fully manage select asset classes and be able to leverage these insights for the fund’s total portfolio approach, Sawtell-Rickson said.
“We are able to get insights from direct teams that are looking downwards in quite a micro way and then feeding that information upwards into a macro and market lens, while also using these insights to further inform our responsible investment approach,” she said.
Looking ahead to phase two, Sawtell-Rickson said “what’s left?” was the obvious question.
“International active management, as we know, can be quite challenging for fundamental strategies, if you don’t have offices globally, and you’re not in the time zones,’’ she said.
“Enhanced unlisteds [assets] is a key focus for us. Is there a way to operate differently in the unlisted asset value chain to improve net performance? These are the kinds of conversations we’re having right now.”
Firm in HESTA’s sights is advocacy for responsible investing and gender diversity, with 40 per cent of its own investment team female and partnering with people: “who have similar values to us”, she said.
“We want to invest with people who have similar values to us. The people that don’t think climate change is a myth, for example, people that aren’t working against us in key areas that lower the systemic risk of our members’ investments and are critical to the future economy and society. We want to work with people that we think are honest and have integrity. We want to work with people that are trying to respect and value diversity,” she said.
HESTA’s most recent survey of external fund managers had shown an improvement in female representation in the Fund’s investment value chain from 17 per cent to 22 per cent in the past few years.
But if partners did not progress with promoting women and there was “no clear action and no effort, they may not be long term partners”, she said.
The fund’s “watershed” moment of active management, its announcement that it would vote against AGL’s proposed demerger in May, was an example of using its influence to steer positive outcomes to decarbonisation, she said.
Citing pressure from a “small number of investors” including Atlassian founder Mike Cannon-Brookes’ Grok Ventures, AGL withdrew its proposal to separate its generation and retail assets on May 30.
“We don’t think you can divest your way to a better future. We think you’ve got to roll up your sleeves and do some hard work here,’’ Sawtell-Rickson said.
“We’ve talked a lot about being gutsy advocates for meaningful change … so when moments like this present, there’s always risk … you can’t be a gutsy advocate and not take risk.
“AGL is an example where we felt the proposed demerger was not in the best financial interests of HESTA members. We voted against the proposal because we believed doing so would deliver better financial and environmental outcomes in the long term. The demerger was clearly not aligned with the Paris Agreement and would not sufficiently manage the risk of stranded assets; there were no capex commitments, no adequate plan. The demerger meant that there was no longer a connection between the renewable and the dirty assets such that a standalone company owning AGL’s coal-fired power plants would have less incentives to transition to a low-carbon future. We felt it was the wrong decision for our members and for Australia, and felt strongly enough that we were willing to signal that early.”
Sawtell-Rickson said the advocacy was an authentic display of where the fund stood and shared its thinking with others.
“I think maybe we will do that more. Maybe others will do that more and if that helps lead to a better managed and accelerated transition, I think that would be a good outcome,’’ she said.