L-R: Sam Sicilia (moderator), Blackrock co-founder Robert Kapito, Russell Clarke, Alison Tarditi, and Ross Barry. Photo: APFIS

Some of Australia’s top institutional investment chiefs have stressed the importance of investment resilience and adaptability during times of uncertainty, urging peers to control – but not be controlled by – risk when approaching portfolio construction. 

Alison Tarditi, chief investment officer of Commonwealth Superannuation Corporation (CSC), told the Asia Pacific Financial and Innovation Symposium (APFIS) on Tuesday that institutional investors have moved from “decision-making under probabilistic certainty to decision-making under genuine uncertainty”. 

In a relatively rare public appearance, Tarditi said the $70 billion CSC, which manages the pension assets of Australian Commonwealth Government employees and members of the Defence Forces, has moved from allocating by assets to allocating to attributes in its portfolio.  

“Technology has become the primary factor production of the last three decades, extended limits on labour supply, obsolescence risk feels high everywhere, and economic vitality has drifted from things to ideas,” she told the symposium.

“Over the last two years we’ve remained in… risk-on portfolio characteristics because we thought the market was under-pricing the continued ability for growth even as interest rates normalise.” 

An initiative of the Victorian Labor government,  the symposium was seemingly aimed at showcasing Melbourne as a global financial centre. With the help of industry super giants, especially Hostplus CEO David Elia and CIO Sam Sicilia, the taxpayer-funded bonanza enlisted support from household name US asset managers including Blackstone, BlackRock and Apollo. Local business celebrities in their own right, Elia and Sicilia traded jokes and even selfies with the Wall Street titans during proceedings.

Spirit Super CIO Ross Barry also urged investors to “not jump at shadows” in an uncertain economic environment. The $27 billion fund has a reasonably young membership base which Barry described as sitting in between Hostplus and UniSuper, and has allocations to listed equities and private markets on the higher end of the spectrum.  

“It’s tempting in this environment of uncertainty and geopolitical risks… to always be looking for what could possibly go wrong,” he said.  

“But I have a fundamental view that the biggest mistakes that institutional investors make – the biggest source of leakage – is that we de-risk portfolios far too often and take far too long to put risk back on.” 

“To emphasise that point, I’d ask if you ever sat in a room and heard people ask: ‘What could possibly go right’? So what we try to do is encourage a type of symmetric thinking around both opportunities and risks.” 

Apart from having the right risk management mindset, finding the appropriate investment method is also key to successfully riding the waves of uncertainties, which draws out the age-old debate of active versus passive management.  

Russell Clarke, CIO of state sovereign fund Victorian Funds Management Corporation (VFMC) said while “conventional wisdom” suggests that active managers can react and adapt to challenges and opportunities faster, it is not the case the fund is seeing.  

“I think there is some truth in that [conventional wisdom], but I probably would make the observation that… generally active managers don’t do well in a period of uncertainty,” he said.  

“They often get hurt badly in market turning points, and they don’t see significant change actually coming.” 

He said the way VMFC is building portfolio resilience is by shifting away from investing “along asset class lines” and building a genuine “portfolio of choice”. This means breaking out of the traditional thinking around certain asset classes such as property, where VMFC is moving away from the traditional segmentation of retail, office and industrial, he said.  

“Some of those [property] definitions are really breaking down in the way society operates and the sorts of things we will do as consumers. 

“The thing we’re really mindful of is we actually need to have a framework of systems and a DNA within team that will allow us to evolve the portfolio quickly,” he said.  

Additional reporting by Tim Baker and Roger Prezens

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