Queensland based Brighter Super is looking at increasing its exposure to unlisted assets following its merger with Suncorp Superannuation, according to chief investment officer, Mark Rider.
The fund now has some $29 billion in assets, amassed through the merger of LGIAsuper and Energy Super in 2021 and the more recent merger with Suncorp Super, and has some 22 per cent of its portfolio in unlisted assets – lower than many of its peers.
A former Reserve Bank economist turned asset manager, Rider took over as chief investment officer of Brighter Super in February last year and says the latest deal has given the fund more liquidity to increase its exposure in areas including infrastructure, renewable energy, private equity, and credit.
He says the goal is to “modestly increase” the fund’s exposure to unlisted assets.
“The transfer of the assets from Suncorp Super does introduce a lot of liquidity to the fund,” he says in an interview with Investment Magazine.
“It does dilute the amount of unlisted assets in areas like infrastructure, property, and private equity.
“At the moment we are looking for the opportunities (in these areas) which hopefully will present themselves over the coming year to build a portfolio.”
Most of the attention on superannuation in Queensland has focused on the growth of the $240 billion Australian Retirement Trust, formed from last year’s merger of QSuper and Sunsuper to create the second largest super fund in Australia.
But with more than 250,000 members, Brighter Super is now quietly making its mark as it emerges from the combination of three smaller Queensland based funds, having almost achieved the minimum $30 billion figure suggested by APRA as the ideal minimum for a super fund.
Competitive investment performance
Brighter’s MySuper option returned 10.62 per cent in the 12 months to the end of June, the fifth-highest return nationally, according to SuperRatings.
Rider says the strong performance of its MySuper product was a result of a strong bias towards equities for that product and a relatively small exposure to private equity.
“That reflects our philosophy with our MySuper product that it has a simple construct and lower fees,” he says.
Rider says this was the strategic asset allocation decided on for the MySuper product after the merger in 2021 – an approach which he reaffirmed after taking over as CIO early last year.
Rider says the fund has a clear bias towards investing in Queensland, which is home to more than 90 per cent of its members.
It has holdings in several Queensland airports, including Cairns (3.42%), Townsville (5.12%), Mount Isa (5.12%), Mackay (3.42%), and Gold Coast (5.12%), and 50 per cent of the Sunshine Coast Airport.
It also has a stake in the Gold Coast Light Rail and the North Queensland Gas Pipeline.
“The focus at the moment is going to be more on infrastructure, but also potentially in renewables and the energy transition in Australia, particularly in Queensland which is the home of most of our members,” Rider says.
“We’re also looking at credit markets and for opportunities on the private equity side.”
Brighter Super uses Palisade Investment Partners for some of its infrastructure investment and Rider says the fund sees infrastructure as being a good hedge against the risk of ongoing inflation.
The advantages of a mid-sized fund
Chief investment officer at the $2 billion Christian Super before his move to Brighter Super last year, Rider says that Brighter’s size allows it to consider investment deals which may be overlooked by the megafunds such as AustralianSuper and ART.
“There is an important distinction in thinking between megafunds and funds like ourselves,” he says.
“Our objective is not to be a megafund. At $29 billion we can grow larger, but our intention is to compete against the megafunds by operating more like a boutique investor and being closer to our members.”
Over the past 12 months, he says, the fund has had face-to-face meetings with 13 per cent of its membership ,which it sees as being part of its approach of being a small to mid-sized fund.
“From an investment perspective, we don’t have the massive scale of an Aussie Super or an ART, but we can play in parts of the market where they don’t want to go such as mid-market infrastructure projects and mid-market private equity areas where valuations have been left behind a bit,” Rider says.
Rider says Brighter is not looking to internalise its investment functions.
“We are looking to partner with our fund managers and also to work with our asset consultants, JANA, and build up the right team internally to do the work,” he says.
“We can still play in parts of the market where we think there are opportunities that won’t interest some of the bigger funds as it is not worth their while.”
Rider says Brighter is “just a little bit in negative cash flow” at the moment.
But its acquisition of Suncorp Super has given it access to a younger cohort of members.
Close watch on property valuations
Rider says the fund has been underweight the commercial office tower sector.
“We’ve got about 40 per cent of our unlisted property portfolio in office buildings (valued at around $830 million) which compares with a benchmark of around 50 per cent,” he says.
The fund keeps a close watch on the valuations of its property portfolio, Rider says, mindful of the pressure from APRA on funds to look at quarterly valuations of unlisted assets.
While Brighter Super relies on the valuations provided by the managers of its property investments, Rider says there is a general move towards quarterly valuations in the sector.
The amount of unlisted assets held by some super funds has been criticised, but Rider says listed and unlisted assets both have a “part to play” in the portfolios of super funds.
“Unlisted assets bring something different to the portfolio in terms of the potential superior performance which can come through in the assets,” he says.
“It could be that there is a liquidity premium, or it could be that there is a development opportunity which can be captured when it is in the hands of an experienced, well-connected manager.”
Unlisted assets also have the advantage of not being correlated with listed assets, whose valuations can be affected by market swings, and Rider says the balance between listed and unlisted assets depends on the fund’s need for liquidity.
“Unlisted assets bring a different exposure to the portfolio and a different return potential,” he says.
The trick is to blend it all together as part of an overall portfolio.”
Rider says the introduction of the annual Your Future, Your Super performance test by APRA has brought in a “laser-like focus on risk” for super funds.
“It is leading to a better understanding of the risks that we are running in the portfolio, but it does certainly provide some constraints around what you can do,” he says.
“It is not a case of completely shutting down risk, but you have to be really aware of the risks you are running in the portfolio.”
An investment approach shaped by experience
Rider says his approach to investing is shaped by his training as an economist, starting his career working at the Reserve Bank, including a stint reporting to the Reserve Bank’s future governor Michele Bullock, whom he describes as a “very good economist” with a broad knowledge of the different functions of the Bank.
He says his economics background has given him a top-down approach to investing which considers underlying economic forces, such as the outlook for inflation.
This is driving his confidence in the outlook for Australian shares.
“The Australian market is relatively concentrated in resources and financials compared to more diversified markets offshore,” he says.
“While I think inflation is abating, the risks are going to persist.
“One of the traditional ways of hedging inflation risks has been from commodity prices and you get some of that exposure through the Australian market.
“We’ve looked at the return potential of the Australian market compared to offshore markets, and it has been attractive.
“It’s a position which we’ve continued to maintain.”
From a general investment point of view, Rider sees the market as moving into the later part of its cycle.
“There’s no doubt we are late cycle. The question is, where do we go from here?
“We are in an environment where the returns are going to be modest, with the risk on the downside.
“Most markets have been thinking that we are going to get a soft landing.
“Australia and major economies overseas are pretty fully employed with not a lot of room to grow – certainly not above potential.
“That says we are going to get returns, but they are probably going to be below average with a skew to the downside.”
Rider says the alternative could be a hard landing, which leads to a bear market.
“But it’s hard to get away from the fact that, at the moment, at best returns are going to be modest,” he says.
“What we are looking to do is position our portfolio, given the liquidity that we have, particularly focussed on the area of unlisted assets where we will cautiously build up as well as continuing to evolve on the active management side in equities as well as fixed income.”