Dan Farmer

Insignia Financial – the new brand of IOOF – is the largest retail super fund in Australia and third largest by assets under management. The company’s exponential growth has been underpinned by five acquisitions over the last 12 years including the advice, superannuation and investment businesses of ANZ Wealth in 2019 and MLC in 2021.

“It has been a business defined by acquisition,” said Dan Farmer, the retail fund’s chief investment officer at the Investment Magazine Fiduciary Investors Symposium in Healesville last month.

The challenge for management is to build a unifying culture across disparate groups of employees with varied histories. “The corporate culture is very clear around our clients and trying to improve the financial wellbeing of all Australians and deeply embedding that client centric purpose into the group,” he said.

The multi-asset investment team under Farmer has grown from a four-person team in 2010 when he joined the then IOOF to a team of 47 with over $100 billion of assets under management as of end September.

Its investment operating model is established along similar lines to a large industry super fund or corporate fund, with one investment team and a common investment proposition across the multiple default and choice products it offers.

“We are a big player in the industry and the challenge for us is simplifying that bulk into meaningful scale,” he said. “I’m keen to maintain a sense of comradery and cohesiveness within a larger team”

“Part of my challenge is demonstrating to the investment team that simplification does have a strong link to alpha generation.”

He views culture as a combination of an organic bottom-up and top-down approach. “We’ve been very conscious not to say, here’s the culture, and this is a culture you’re going to have. It’s about continual renewal.”

In addition to its investment business, Insignia Financial’s business operations are organised around advice and the platform administration businesses. The fund has a large advice team with close to 1600 advisers on its books, targeting different parts of the market. “Our approach is using our scale, using technology, and using efficiencies, to make advice more accessible to all Australians; we think Australia is still fairly under-advised,” he said.

The work of its platform administration – the mechanics of getting clients invested – includes platforms such as Master Trust and wraps. “The key evolutionary process there is simplification, trying to get down to a much more consolidated list of platforms and using scale to drive efficiencies,” said Farmer.

Strategic allocations

The investment team is structured along specialist lines and largely appoints external managers though it has internal investment capability. It has three strategic asset allocation (SAA) approaches but is in the process of merging that into one.

Its default fund is weighted around 25-30 percent in unlisted assets including private equity with 27 per cent of its private equity allocations through co-investment alongside its general partners. It is looking to increase co-investments to 40 per cent said Farmer. Insignia Financial also has a direct property investing team for the last 15 years.

In the capital markets team, Insignia Financial runs a traditional econometric bottom-up approach with input from JANA and Mercer as well as a scenarios approach with 40 different scenarios to generate a different perspective.

“A scenarios approach is quite unique,” said Farmer. “We’re seeing how we actually use that approach to supplement our thinking in terms of capital market assumptions in the SAAs with the more traditional approach we’ve taken with JANA and Mercer in the econometric build up.”

Insignia Financial’s position is “mildly defensive” in the current challenging environment said Farmer, which means underweight equities albeit with overweight private equity. However, the fund is slowly taking on more risk in credit but is looking for signs the US Federal Reserve will slow down its rate rises and further softening in earnings expectations for US companies before investing in more equities, he said.

But he thinks a bigger question over the next 10 years is in relation to the valuations of unlisted assets in an environment without the tail wind of falling real yields.

Insignia Financial has a dynamic asset allocation process that allows it to tilt away from its SAA. It tracks its forward tracking error against the Your Future, Your Super performance test and “we have enough buffer to take active positioning,” said Farmer.

“All of us are trying to generate [returns] over long term, but particularly in this environment, we’ve seen some opportunities to take modest tilts to supplement return,” he said.

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