The $13 billion Mine Super, the superannuation fund for the coal mining industry, is taking a tougher approach to big ticket illiquid assets, looking for shorter dated investments in a search for liquidity and flexibility.
The fund has some 18 to 19 per cent of its assets invested in illiquid assets, a smaller percentage than some other larger funds.
In an interview with Investment Magazine, chief investment officer Seamus Collins says Mine Super had “changed the way we look at our illiquids in the past few years”.
The fund, which was founded in 1941, has a “reasonably material stake” in Melbourne Airport, originally held though AMP Capital, which is now owned by Dexus.
“We’ve had that for over 20 years,” Collins says. “It’s a stellar asset which we could only get access to through an illiquid investment process.
“But, realistically, it is an 80 to 100-year asset. It’s very illiquid.”
“More recently, we have started to look at more areas like private credit and short-term private equity opportunities where the liquidity cycle is more around the five to seven year capital recycling.”
“We are very comfortable with illiquidity out to five to seven years. We really like that model of being able to get capital and recycle it through different investments, especially private credit.”
But the fund was “less likely” to go into what he would describe as “deep, deep illiquid assets including unlisted property and infrastructure and some private equity opportunities where you are not going to see [returns for many years].”
He says the fund is happy with its investment in Melbourne airport which is a “forever asset”, providing returns for members for the next 40 to 50 years.
“But, to give us more flexibility and more opportunity, we are starting to move into the short term illiquid space,” he says.
The former AUSCOAL Super, Mine Super has just over 56,000 members, with an average age of 48.
Liquidity management to the fore
Collins’ comments come as liquidity management is becoming an increasingly important issue for super funds as more members move into retirement.
APRA is also taking a tougher approach to the valuation of illiquid assets by super funds.
Collins says Mine Super, which has taken a more aggressive approach to growth in the past few years, keeps a close eye on its liquidity position.
“We are conservative in the way we invest around liquidity risks. We look at our liquidity position daily,” he says.
He says the fund had come through the Covid pandemic and the early withdrawal scheme of 2020 “with flying colours”.
A former executive director in charge of superannuation relationships with JP Morgan, Collins joined Mine Super in November 2017 as executive manager, portfolio implementation, and was promoted to chief investment officer in February 2019.
His promotion to the role also saw a recalibration of the fund’s investment strategy.
“We had a change in approach to growth and market exposures in 2019,” he says. “Historically, Mine Super had been quite a defensive fund, almost willing to accept lower risk returns and less market exposure for less volatility,” he said.
“Over time, we have gradually moved our balanced fund into more growth exposure.”
The fund’s LifeCycle product had a high growth element for members aged up to 50 before cutting it back as members move towards age 65.
The changed approach had seen the fund show a “strong recovery from the pandemic”, he says.
Its growth option saw a return of 22.6 per cent in the financial year ended June 2021, the top performing growth fund in the Chant West survey at the time.
Not crossing the Rubicon
Mine Super manages its investments externally, but handles its strategic asset allocation decision making in house.
“We internalised our asset allocation strategy back in 2017,” he said. “I run a team of three very qualified quant staff.”
“We don’t tend to use asset consultants, except for the occasional ad hoc work.”
Having an in-house asset allocation team has allowed the fund to move quickly when it saw markets changing, such as the big fall in share markets in early 2020 in response to the Covid pandemic.
“We were able to rerun all of our scenarios and recreate our strategic asset allocation very quickly following the pandemic market correction,” he said.
Collins says there is no question of it bringing its investment management in house which is being done by many larger industry super funds.
“In terms of portfolio management, that would be crossing the Rubicon,” he says.
He says such a decision would involve a major investment in inhouse capability and a substantial change of its outlook.
“I don’t think we would look at internalizing portfolio management for quite some time.”
Mine Super announced in December that it had entered into an agreement about a possible merger with the smaller TWU super fund which has assets of around $6.3 billion.
The combined fund would have assets of almost $20 billion with more than 150,000 members.
Collins says he doesn’t expect any merger to change its position on the externalisation of investment management.
While not wanting to discuss any specifics of a potential merger with TWU super, he said any merger between super funds can allow the bringing together of two investment teams and their philosophies.
A merger, he says, can allow for more innovation with the potential to “pick up opportunities on both sides”.
While Mine Super has delivered strong investment performance for its members, Collins says the fund’s insurance offering was particularly important for its members who have a higher risk occupation in the mining sector.
Membership up
Despite extensive media coverage of the decline of the coal industry in Australia, Collins says the employment in the sector has proved remarkably resilient and Mine Super is seeing increases in its membership.
“We haven’t seen a lot of industry contraction. The export industry is stronger than it has ever been. The prices for thermal and metallurgical coal are remarkably strong.”
Collins says its membership based in the coal industry does not affect its investment decisions, with its portfolio not too different than most industry super funds.
“We don’t actively change our investment approach substantially from what you would recognize as an industry fund investment philosophy (because of its membership in the coal industry),” he says.
“We do get approached by quite a lot with opportunities related to the industry, but, by and large, you would not consider our portfolio to be from a non (coal) industry investment organization.”
“We don’t see any fundamental conflict in our industry with the need to invest sustainably and achieve long-term returns.”
“We don’t actively tilt into the energy or coal industry in terms of our investments. But we don’t exclude it. We are supportive of our industry and our membership.”
Collins says the fund sees “ESG very much as a risk factor to long term returns.”
“We have uplifted out ESG in the last few years and created more resourcing for responsible investing. We are not an ESG-led fund, but we are actively engaged with ESG and look to report our ESG outcomes to our members.”
