The $26 billion Spirit Super is looking at a “pipeline of opportunities” to invest in regional Australia, moving on from its failed acquisition of the port of Geelong according to chief investment officer Ross Barry.
Spirit Super’s deal to buy the operator of Geelong Port in a $1.2 billion deal alongside Palisade Investment Partners was announced in January. It was billed as the fund’s first big transaction following the merger of Canberra-based MTAA Super and Hobart-headquartered Tasplan in April 2021.
More recently, Spirit Super and CareSuper announced on November 9 merger discussions to create a $45 billion entity with more than 500,000 members.
But the Geelong Port bid attracted the interest of the Australian Competition and Consumer Commission (ACCC) because a consortium of investors managed by Palisades already owned the Port of Portland in the west of Victoria, eventually prompting the parties to drop their application for ACCC approval in August.
“We’ve got a very strong legacy attachment to regional Australia by virtue of our relationship with the motor trades industry,” Barry said in an interview with Investment Magazine.
“We’ve got a thematic, in our investment strategy, around some of the opportunities in regional Australia.”
“The port of Geelong ticked a lot of boxes for us for a whole lot of reasons. It was an asset we wanted to own, so we went pretty hard on it.
“But we have a pipeline of opportunities which are not too dissimilar to that. As a small to medium sized fund, there are a lot of opportunities we can access and take advantage of, deals which a lot of our larger peers probably aren’t able or willing to look at.”
The port was being sold by owners State Super and Canadian investment giant Brookfield.
But he said that Spirit still had a “very high conviction around the mid market in Australia” including infrastructure. “There are other opportunities which make a difference to us which are not necessarily on the radar for the mega funds.”
Regional focus
Spirit is promoting itself as a fund with a strong commitment to regional Australia with offices around Australia, including Hobart, Canberra, Melbourne, Launceston, and Newcastle.
Barry is based on the central coast of New South Wales, a few hours north of Sydney, while Spirit’s chief executive, Jason Murray, is based in Brisbane. He worked for ten years at First State Super before taking over as chief investment officer of the combined Tasplan/MTAA fund in September 2020.
Spirit Super, which has just over 320,000 members, still mainly uses external fund managers but has been working over the past two years, to bringing some of its management in house. It manages some 10 per cent of its assets internally such as cash and a good portion of its property and infrastructure portfolios
“We’ve gone through a process of internalising quite a bit of our investment functions,” Barry said. “[Before the merger], we had a model which was fully outsourced and we relied pretty heavily on asset consultants for advice.”
With so many super funds now moving their asset management in house, Barry said Spirit is in a position to “negotiate reasonably attractive fees” and other conditions with asset managers.
Keen on impact investing
Spirit has also been very public on its interest in impact investing with an internal target of 15 per cent allocation by 2030, compared to the current figure of below five per cent.
One of its most successful impact investments, he said, has been an investment in Flavorite, a family owned company with operations in regional Victoria, including Shepparton and Warragul, now one of the largest hydroponic growers of tomatoes in Australia. This is part of its 40 per cent investment in the $250 million Victoria regional growth fund.
In April this year, Spirit benefitted from the sale of a part interest in Canberra-based data company Instaclustr which was bought by US listed company, NetApp, for a reported $500 million. The tech start up was founded in 2013, funded by an investment partnership between the Australian National University and the former MTAA Super.
Barry described that deal as “a perfect example of what a focused impact investing strategy by institutional investors in Australia can do if they do it well”.
Re-positioning portfolio
Spirit began positioning its portfolio a year ago in the prospect that there was going to be a material increase in inflation.
“We thought it would be a more enduring inflationary shock than what a lot of other commentators were talking about at the time,” said Barry.
He said the fund had been selling out of a lot of its higher risk investments over the past year. “We divested a very significant amount of emerging market debt and equities. We tilted from long duration, fixed income to more floating rate credit to reduce some of our direct interest rate exposure.”
“Earlier this year, with the Russian invasion of the Ukraine, we took some risk out of our equity portfolios in favour of cash.”
*This story has been updated with news of merger discussions between Spirit Super and CareSuper.
*This story was edited on 10 November 2022 to correct paragraph four to say a consortium of investors managed by Palisades Investment Partners owned the Port of Portland and not Spirit Super and Palisades.
