More than 18 months after the blockbuster merger of Sunsuper and QSuper to become the Australian Retirement Trust, the combined fund’s CIO, Ian Patrick, said pursuing a consistent and “joined up” investment strategy is among his top priorities.
Speaking on a panel alongside Future Fund deputy CIO Alicia Gregory at the CFA Societies Australia Investment Conference today, Patrick likened the now $260 billion mega-fund he oversees to the biblical allegory of Noah’s Ark.
“What I mean by that is we have two of everything… you may get a leopard in the Himalayas and a leopard in the Serengeti, but they aren’t the same thing,” he told the room of CFAs.
The creation of ART was touted as a “merger of equals” at the time of the deal, as both funds had similar AUM under their belts.
“At the end of the day, ART is a bet on scale,” Patrick continued. “Scale only delivers when you can harvest the synergies and so driving that integration is critical.”
In managing QSuper and Sunsuper’s legacy approaches to “genuinely” deliver an ART investment approach, Patrick said the thing that matters the most is where the two “join up”.
“Whilst we might not refer to it as a total portfolio approach, having the board and the investment team aligned, and having the issuers and the consumers of assets aligned – to the point on data segments and if we can find a partner who can build and utilise our capital to pursue the market in a way that appeals to us – that alignment is crucial.”
Gregory, whose employer the Future Fund is an advocate for the total portfolio approach, said that a downside of the approach is that you cannot easily delegate decision-making to specific sector and asset class specialists that report to you.
“When you think about a portfolio, from a sector specific approach, you probably end up with a bit of diversified portfolio at the top level, because sector teams might be thinking about diversification within the sector,” she said.
“We don’t have that… and it does make some sector teams sometimes uncomfortable with a more concentrated portfolio, if there’s conviction in positions.”
She conceded that not all professionals will thrive in the sovereign wealth fund for that exact reason.
The broader picture
Turning to geopolitical uncertainties, Patrick said he had been following the global debate about accurate pricing and political risk.
“The only thing that constitutes geopolitics is big power competition, And the scenarios that flow from that are hot or cold or some other form.
“Those are the things that we can’t really control for in a portfolio.”
The topic took centre stage at the Fiduciary Investors Symposium at Stanford University last month, at which Patrick was a delegate representing ART and Australia. The prospect of cold war with China was better than all the alternatives facing the world, Stanford Professor Stephen Kotkin told the event, which was hosted by Investment Magazine sister title Top1000Funds.com.
Gregory added there are plenty of conversations about Russia, Ukraine and China going around right now. But there’s one risk that’s not being discussed enough amongst investors.
“The data at the moment is indicating Trump might be our next US President. Our biggest risk is actually with the US right now to both markets and portfolios,” she said.
“I think that is one thing that investors are speaking less about today. And apart from an election, it’s hard to know where that’s going to go.
“There’s plenty of things going on in the world that will lead to a more divided world… thinking about that in scenarios and stress testing a portfolio for how well they perform is the way we think about it.”