AustralianSuper’s moves to beef up its London staff highlight the growing offshore footprint of Australia’s superannuation funds.
While many funds have offshore investment exposure, the moves by industry super fund investment vehicle, IFM Investors (with funds under management (FUM) of more than $200 billion), AustralianSuper ($300 billion), and now Aware ($160 billion) to boost their offshore staff signal a quantum shift in the globalisation of the big super funds.
IFM led the way, opening a London office in 2006 followed by an office in New York in 2007. This was followed by offices in Berlin (2013), Tokyo (2014), Hong Kong (2016), Seoul (2017), Zurich (2018), Amsterdam (2021) and Milan later this year.
It is now seen as a global investor with a strong expertise in infrastructure, managing funds for offshore institutional investors as well as Australian super funds.
As the big Australian super funds internalise their investment management, they are also following their offshore investing with offshore staffing as they look to become part of bigger deals and oversee significant offshore investments.
AustralianSuper, which now manages some 55 per cent of its investments inhouse, was the first super fund to set up overseas offices, dating back to a research office in Beijing in 2012. It opened its London office in 2016 and one in New York in 2021.
In July, it showed its commitment to offshore investing by appointing Damian Molony, who has been working in its London office for the past five years, as its deputy chief investment officer.
The fund has followed this up with the announcement of six major hires in its London office – Carl Astorri as head of investments, Europe, John Normand as head of investment strategy, Sujay Shah as head of internal government portfolios, Deborah Gilshan as head of ESG & stewardship, Europe, William Manfield as head of group risk, international and Amanda Mitchell appointed head of corporate affairs, Europe.
The fund currently has around half of its $300 billion in assets invested offshore, with $85 billion in the US and almost $40 billion in the UK and Europe.
Its offshore investments vary by asset class with $90 billion in global equities, almost $17 billion infrastructure and $15 billion in private equity overseas.
The fund is expecting to invest some 70 per cent of its future cash inflows offshore as it heads towards $500 billion in the next four years.
70 per cent of funds to go offshore
This will see its global team growing from around 100 today to around 300 in the next three years, with around 130 in New York and 160 in London with a small team in Beijing.
Buying global equities can easily be done from Australia, but having a larger offshore team, Moloney told Investment Magazine, will allow the fund to do more direct investments in private markets offshore.
“To get into opportunities early, and at a lower cost you need to be close to where the deals are done, on the ground in the country or region,” he said.
“We think there are better long-term returns if you’re in the deal early.
“It’s much harder to do that if you are not in the country or region, building relationships and proving your credentials.”
With more offshore assets, it is also important to have offshore based staff to manage them and work with local stakeholders.
Molony argues that having a presence offshore also allows the fund to be better known by other major investors looking to do deals. “It’s unlikely you would ever hear about potential deals like Canada Water (50/50 joint venture with British Land for a 53-acre regeneration project in London worth $550 million negotiated in 2022) unless you are on the ground,” he says.
“Property and infrastructure investments, in particular, are very much about understanding the opportunity in its local context, which is hard to do from Melbourne.”
The fund has some $15 billion invested in the UK including the Canada Water regeneration, property in London’s Kings Cross area, the Peel Ports Group, and Heathrow Airport.
A key focus for its New York office, Molony says, is mid-market private equity, particularly private equity investments of around $500 million, either in partnership with managers or as fund allocations.
But it is not rushing to invest in this sector “because the markets are still digesting higher interest rates.”
Wearing out shoe leather
Aware Super’s deputy chief investment officer and head of international, Damien Webb, is heading off to London in October, following the opening of the Aware office in July.
By the end of the year, the fund plans to have 14 people in its London office, a combination of local hires and some staff sent from Australia.
Expectations are that this could rise to some 30 to 40 staff within the next few years.
Webb, who has been overseeing Aware’s offshore expansion strategy, takes a similar view to AustralianSuper with the initial focus for the UK team will be on the private market, including property, infrastructure and private equity.
“You can build a healthy portfolio of global listed stocks from Sydney and Melbourne, but our first wave (of London based staff) will focus on private markets,” he tells Investment Magazine.
“It is an area where we want to go more direct – to do our own due diligence and our own governance.
“These are areas where you need people on the ground, wearing out shoe leather, making conversations and having relationships with people.”
Webb admits that Aware has been watching AustralianSuper which he says has “blazed the trail”, expanding its footprint in London and then into North America.
“In the past we have been investing offshore using external managers to help us find opportunities,” he says.
Too big for Australia
“But as Aware goes from $160 billion to $250 billion, having 85 percent of your real estate portfolio in Australia is not going to hold. We are just getting too big for the (Australian) marketplace.”
“We have about 15 to 20 per cent of our real assets invested offshore but we are looking to increase that to at least 40 per cent. It will vary by asset class, but there will be many billions we will be deploying in private markets offshore via the London office.”
Aware has had global investment in property for some years with a major investment in the build-to-rent sector in the US with Lend Lease since 2018 made by the then First State Super
The fund, which is a major investor in affordable housing in Australia, this year announced a $900 million investment in UK build-to-rent company, Get Living, which is expected to take in more capital over time.
Webb says there are longer term plans to open an office in New York but this could be a few years away.
Like Molony, he believes that having a footprint offshore also means that the Aware name can become known among some of the big global investors including the Canadian pension funds and sovereign wealth funds which could see the fund have access to bigger deals.
As he acknowledges, expanding offshore, particularly for industry super funds which have a unique history background, will bring the challenges of retaining the fund’s culture with more offshore based staff.
But with the Australian super funds continuing to grow, as compulsory super moves to 12 per cent, local markets are way too small for their investment needs.
Over time, more of the big Australian funds will be following the Canadian mega funds in having significant offshore footprints.
It’s very much a case of watch this space.