When it comes to making investment decisions, Hostplus chief investment officer Sam Sicilia has made it clear that the industry fund giant “doesn’t care” about interest rates, inflation, legislative changes or the politics of the day, because something else is keeping him up at night.
In an exclusive interview with Conexus Financial editor-in-chief Aleks Vickovich to open this month’s Fiduciary Investors Symposium, Sicilia told his peers that war is the outcome investors had the least ability to control and yet was the “biggest changer of demographics” in his view. While CIOs may wish to prepare their portfolios for this kind of event, he said, in most cases, they won’t get advance notice.
“The point is, you have to realise – we have to realise – that we can’t do anything about most events,” he told the conference in Healesville, Victoria. “We have to invest in an environment of uncertainty.
“And what do you need to be successful in that environment? You need a board that understands your strategic attributes and your physical attributes to allow you to play that game.”
‘Growth assets all the way’
Hostplus, with its roots in hospitality and tourism industries, services close to half of all first-time tax file number applicants, alongside retail industry super fund REST, according to the Australian Taxation Office.
And to Sicilia, it doesn’t matter that he’s managing a $103 billion pile, but it matters that he’s managing the $103 billion pile of Hostplus, with its particular “combination of attributes”.
“With very, very young demographics, a lot of money coming into the fund and not a lot of money leaving it… if I was the CIO of some other fund – even if the FUM [funds under management] was the same – I couldn’t behave as I do at Hostplus.”
This longer retention of money has given Hostplus the appetite and tolerance for more illiquid assets (something for which it has been criticised) and greater diversification.
As of the beginning of 2023, the fund has about half of its assets in Australian, developed and emerging market shares. The other half is in unlisted assets such as infrastructure, real estate and credit.
But clearly not everyone is as bullish as Hostplus, with Sicilia saying that the industry’s way of constructing pre-retirement and retirement phase portfolios has been “a source of frustration” for him.
“If you think about pensions, designed at a time when people retired at 65, and conveniently died at 68, that was great,” he said.
“But now you’re living to 98 – and if medicine does a job, that number gets bigger – how do you plan to live for 30 years without an income? The answer to that is you need to be invested in risk assets well beyond your retirement age.
“Somewhere closer to your actuarial death date is where you should start to go into a little bit more conservative. Growth assets all the way.”
Venture capital lore
As one of the biggest venture capital investors in Australia by far, Sicilia shared that Hostplus’ $92 million investment in Australian tech success story Canva is valued at $2.5 billion during its peak and at $1.5 billion right now.
Regulators have taken issue with disclosures surrounding the asset’s value. But despite Canva’s well-reported valuation downgrade since last year and comments by regulators, Sicilia is content with where Hostplus’ stake is.
“Call it $100 million [of investment], so I can do the maths easier. Even if it halves again [from now], it’s $800 million, it’s an eight times outcome. Who wouldn’t want that?”
However, he did stress the importance of having a long time horizon and a board that’s supportive of the cause, with the latter one understanding that they are okay with losing the investment completely because it’s in the nature of the asset class.
Combining those elements and a strong diversification of venture capital portfolios with future-enabling sectors (biotech, robotics, SaaS platforms, fintech), and diversifying in small slices of assets, Sicilia said funds don’t even need all of the companies they invest in to pay off to be successful.
“I would encourage any of my super fund peers to try to look at venture capital through that lens.
“And why do I want others to invest in venture capital? Because we can’t build the future alone.”