The $83.5 billion construction industry super fund Cbus plans to bring more of its investment management inhouse, taking an increasingly proactive approach for involvement in big ticket projects with governments and companies, under its new five-year investment strategy.
While Cbus expects to hit the $100 billion mark in assets under management, it is ruling out any immediate plans to set up offshore offices for its investment team, citing concerns over the risks to cost and culture.
In an interview with Investment Magazine, acting CIO Brett Chatfield says Cbus wants to “move up the value chain and be more involved in creating [investment] opportunities”.
This could include becoming involved in renewable energy and energy transition projects with state governments.
“One of the key changes [in strategy] is being more focussed around creating opportunities that fit our portfolio and leveraging what we have in terms of a large [investment] team and capability to create opportunities and work with partners, whether they are on the private side or government side,” he says.
Chatfield is currently acting CIO while CIO Kristian Fok is acting CEO following the retirement of Justin Arter. Chatfield and Fok will continue to act in their respective roles until the fund’s board, chaired by former Federal Treasurer Wayne Swan, appoints a permanent chief executive.
Cbus has ruled out plans to set up offshore offices for its investment team, which has been done by Australia’s largest superfund, the $280 billion AustralianSuper and $200 billion industry super fund infrastructure investment vehicle IFM Investors.
The $150 billion Aware Super announced plans earlier to open an investment office in London by year end, appointing deputy chief investment officer Damien Webb as head of international.
“We are very comfortable that we can execute the strategy from Australia,” Chatfield says.
“The team travels as required, but we think there’s quite a bit of risk [in terms of] having the right culture, attracting the right people, and all the risk, compliance and licensing issues to be considered [in having an offshore office] versus the potential benefit which would be derived at our size.”
He believes Cbus does not need to incur the cost and take on the risk, confident that “we can successfully execute from Australia, leveraging the partners we have offshore and travelling extensively as required”.
Inhouse management strategy
Cbus currently internally manages 38 per cent of its portfolio, up from nine per cent five years ago. It estimates this has resulted in savings of $512 million in investment fees over the period.
It has boosted its inhouse investment team from 50 to 140 over the period. Its new five-year strategy involves increasing the amount of assets invested inhouse to 50 per cent. Cbus currently has around 46 per cent of its assets offshore.
Chatfield expects the offshore proportion to increase over time with more exposure to global equities and infrastructure.
Cbus’s expansion in recent years has included mergers with the much smaller Media Super in 2022, and NSW energy industry super fund EISS which closed on Monday.
Chatfield says the fund was “clearly moving to be well north of $100 billion in the not too distant future” from a combination of cash inflows and investment returns.
“We have plenty of scale and positive cash flows to continue to take opportunities from an investment point of view.”
The fund would continue to grow organically but it was “still open to mergers where they make sense,” he says.
The fund has net cash inflows of around $3 billion a year. The growth option delivered returns of just under eight per cent for the financial year to the end of June, following a small negative return the last financial year.
Risk to property exposure
The fund’s significant exposure to property, including its Cbus Property arm, has generated public debate of the possibility of a valuation downgrade given the impact of soaring interest rates on the property market in Australia and overseas.
Chatfield rejects these suggestions as “we are getting very healthy returns for our members, even with property being a little bit softer,” he says.
“Property has been a very good driver of long-term performance for us.”
The fund has made a small cut to its allocation to the sector from 13 per cent to 12 per cent over recent years with less than two per cent in listed property stocks.
Cbus’s property assets are focussed on high quality assets in good locations with long term leases according to Chatfield.
It is involved in the $300 million refurbishment of the former David Jones store in Sydney and has just finished an upmarket residential tower development in Spring Street in Melbourne.
“We have a lot of government and higher end corporate tenants,” he says.
“While clearly there has been some weakness in the December and March quarters, on a relative basis we are very well positioned in terms of the quality of our portfolio.”
“It’s something we are keeping a very close eye on but we are still comfortable the quality and the broader diversity of our portfolio means we are still in very good shape.”
He says the fund is in talks with the Federal Government about potential involvement in the affordable housing area. It already invests in bonds issued by the National Housing Finance and Investment Corporation (NHFIC).
Under the proposed $10 billion Housing Australia Future Fund, NHFIC will significantly increase its role within the sector to develop 30,000 social and affordable dwellings. The enabling legislation is currently being debated in the Senate.
Appetite for renewables
Cbus is working with global investors including Brookfield Asset Management, Copenhagen Infrastructure Partners (CIP) and the Dutch Infrastructure Fund (DIF) to expand its renewables investments.
The fund has teamed up with DIF in its Bright Energy wind and solar renewable operations in Western Australia and with CIP for the proposed Star of the South wind project in offshore Victoria.
Chatfield says the Star of the South project is in its feasibility and licensing stages, with generation to start in 2028.
The fund had the potential to invest more in the project which “has the potential to be a very significant asset for Victoria in terms of the amount of power generated from it,” he says.
It is in discussions with Victoria and Queensland state governments in particular, given the significant capital expenditure needed to decarbonise the respective energy systems.
“We want to be present in those early discussions to present what we can potentially do as a partner in that space,” he says.
“There is a lot to be built around renewables − whether it is solar, wind, or pumped hydro.”