Graeme Miller

TelstraSuper’s chief investment officer, Graeme Miller, believes his fund is in a “sweet spot” when it comes to investing.

“We’re large enough to have a well resourced team, large enough to have interesting and sophisticated investments, large enough to negotiate very favourable fees for our members, but small enough to be nimble and very focused,” he says in an interview with Investment Magazine.

Miller says Australia’s largest corporate fund, the $23 billion TelstraSuper, which has a steady net cash flow, has to be disciplined in its investment approach − in both deciding what to buy and what and when to sell.

Unlike the big industry super funds, which are under pressure to invest billions of dollars of net cash inflow a year, TelstraSuper’s cash position means it has to be very discerning in its new investments as they have to be largely financed by asset sales.

“We don’t have the same problem that many of the very large funds have − the need to invest an avalanche of money every week, month or quarter,” Miller says. “If we want to add a new investment into our portfolio, we need to take something out. Opportunities need to fight very hard to get into our portfolio which is a very good discipline.”

Open to public

Once only for Telstra employees, the fund expanded to workers and their families and last year opened to the broader public.

Its median member balance is higher than many other funds − at $154,654 − but the continued reduction in the Telstra workforce has put constraints on its growth.

The fund’s latest annual report shows that it took in just over $800 million in member and employer contributions over the year, while paying out $756 million in benefits to members. It also took in $336 million in transfers from other super funds but paid out $535 million in transfers to other funds.

It is a factor which shapes its investment approach in a way which is different from many other larger industry funds − many of which are also growing as a result of continued mergers.

Miller has been chief investment officer of TelstraSuper since May 2016, joining the fund after a 16-year career with consulting firm Willis Towers Watson.

Miller says TelstraSuper was one of the early movers amongst super funds to bring some of its investments in house with about a quarter of its assets managed in house

“We were one of the pioneers of internal funds management,” Miller says. “We have been doing it for well over a decade, long before most other super funds in Australia.”

He says some investments are a hybrid model which means having a very close relationship with the external manager. “A very large proportion of our property portfolio is in bespoke or tailored structures,” he says.

“We’ve got a small number of like minded investors where we have a lot more control and visibility and proximity to the underlying assets.”

This includes a partnership with Victorian Funds Management Corporation (VFMC) and Charter Hall to invest in a portfolio of logistics assets.

“We formed the view that, with emerging trends in ecommerce and with the headwinds facing retail property, it would make sense for our members to be exposed to the logistics and warehouse facilities which were going to power ecommerce,” Miller says.

The fund also has an investment in a portfolio of Bunnings stores through a trust managed by Charter Hall. “Bunnings is a beacon of resilience in an otherwise fragile retail sector,” he says.

“Rather than invest in a portfolio of generic, undifferentiated shopping malls which were facing all the headwinds that retailers have faced, we think a portfolio of Bunnings stores is more resilient.”

The fund has recently sold its half interest in Carlingford Court, a shopping centre in Sydney’s north western suburbs. Media reports in September said TelstraSuper had sold its 50 per cent stake to Hong Kong based property investor, JY Group, for $120.5 million.

TelstraSuper and the company now known as Vicinity Centres bought the centre for a reported total of $177 million in 2013.

“We realised a significant profit on that investment,” Miller says. “When we compared its future prospects with other opportunities which could be in our portfolio, we reached the conclusion that there are likely to be better opportunities elsewhere.”

“We are prepared to sell assets once they achieve the investment thesis we thought they would, or if something changes about the outlook. Managing a portfolio means being disciplined on the way in as important as being disciplined and detailed on the way out.”

Zeroing on opportunities

Miller says TelstraSuper also has what it calls an “opportunities” asset class of up to $1 billion for opportunistic investments.

“It is designed to allow us to take advantage of opportunities which get thrown up through market conditions, typically market dislocations.”

“It means if we see a good investment we can quickly and efficiently take advantage of it and not be too fussed about what asset class bucket it sits in.”

Miller says Covid 19 was the kind of situation which threw up some investment opportunities as a result of market dislocation.

The opportunities asset portfolio is quite diversified with a dozen different investments. Earlier this year it worked with one of its external managers to build a portfolio of liquid securities which it believed would outperform in a period of high inflation.

Miller has also been using the opportunities fund to buy shares in listed real estate investment trusts (REIT) at a time when they were trading at significant discounts to their underlying assets.

“There was definitely a dislocation there,” he says of the listed REIT market. “We have been progressively building a portfolio of listed property securities in anticipation of their prices moving back closer to their underlying assets.”

The cash crunch for some Australian companies when Covid hit at the beginning of 2020 has also provided opportunities for the fund to move into lending to companies.

“When credit markets dried up at the start of Covid, the traditional funding path for many ventures dried up,” Miller says. “There were opportunities for us to get outsized returns for some well capitalised, very high quality credits which simply weren’t able to source funding from some traditional routes.”

Around the same time the fund also decided to buy some 5G mobile spectrum. “Our view is that, with the internet of things and the huge trend towards flexible working and working on the go, there was going to continue to be a huge demand for the spectrum.”

“None of these things are huge. A larger investor might not bother with these things as accessing these investments at scale is tricky. But when we combine them altogether, we have ended up with a well diversified portfolio.”

De-risking the portfolio

Miller says TelstraSuper has moved over the past year to de-risk its portfolio, reducing its exposure to equities and increasing its exposure to sovereign bonds from a small base.

The value of its listed equities was down from $13.2 billion as of June 2021 to $11 billion as of June this year while the portfolio of unlisted equities rose from $4.9 billion as of June 2021 to $5.9 billion as of June this year, $544 million having come from gains in that portfolio.

“We are more cautiously positioned today than we were 12 months ago in terms of our exposure to equities,” he says. “We think caution is still warranted… and markets will continue to be very fixated on interest rates.”

“Although we are not quite ready to increase exposures yet, it wouldn’t surprise me if our next move is to add risk, rather than take risk off the table.”

*This story was corrected on November 17, 2022 to say the fund last year opened to the broader public and not that new members needed to be referred to by an existing fund member. 

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