Nik Kemp. Photo: Simon Hoyle

As superannuation funds continue to grow and mature and internalise their investment operations, they are taking on the characteristics of asset managers as much as they are asset allocators.  

This presents a range of structural and management challenges, and it’s often assumed they do it to rein in costs, but the Fiduciary Investors Symposium has heard that there are other more important reasons for doing it. 

AustralianSuper global head of real assets Nik Kemp said the merger of the fund’s real assets and infrastructure teams towards the end of last year has delivered a range of investment benefits, and cost is “the thing that people often talk about, but to me that’s like number three or four in terms of the priority”. 

Merging the teams was a natural outcome of how they operated in their respective asset classes, Kemp said. For example, he said, AustralianSuper was investing in data centres, which are really nothing more than “big boxes”. 

“You make sure it’s super, super secure, and you make sure it’s got incredible power and cooling resilience,” Kemp said. 

“All the kit belongs to the tenants. An Amazon or Google will come in and put in their servers, and all we really need to do in that circumstance is just keep them cool and keep them safe.” 

That’s a very similar paradigm to owning an office building, Kemp said. 

“When Dexus owns an office, basically they provide a building and a tenant comes in and fills it out, they put in their desks and computers and fit it out in that way,” he said. 

“Those two assets look very, very similar.  

“We were looking at a particular office building we had that was 20 years old, and it was being refurbished, and we’re thinking, OK, let’s not just refurbish this office for today, let’s refurbish it so we’re future-proofing it for at least the next 10 years. 

“You look at data centres, and we’re asking ourselves exactly that same question. In 20 years’ time, when the Amazon contract has come off, what are they going to want that we’re going to have to refurbish? It made sense in that particular circumstance as well to bring the two asset classes together.” 

Kemp said that when the focus shifts to what resources are needed to manage those assets, again they look very similar and share basically the same three components. 

“One is finding the opportunities, and that’s where you’re engaging with the market, you’re engaging with not only the investment banks of the world but also the corporates who actually have these needs,” he said. 

“You’ve got an M&A team, and really, between the infrastructure and the real estate sides the M&A is very, very similar. 

“And then when you own it, the way that you manage that asset, the way we constantly try and extract more value, again, is very, very similar. 

“So it made a lot of sense to bring these two asset classes together and ensure that there is consistency with the way we think about it from an investment perspective.” 

Ausgrid advantage

Kemp said that one of the greatest benefits of an internalised investment team is “you can decide when and where you want to invest”, and AustralianSuper’s investment in the Ausgrid power distribution business was a case in point. 

“We saw that there were a number of offshore funds coming into Australia and taking regulated utilities private. Ausnet went private; Powercor and CitiPower went private. So there’s a really hot demand, and we thought, we’ve got one of these assets here, let’s test the market.  

“We put that out to market and got a phenomenal price for selling it.” 

The fund’s ability to capitalise on an opportunistic sale probably would not have eventuated had the same asset been held by an asset manager. 

“A fund manager who generates fees off that has zero incentive to sell that at that point in time,” Kemp said. 

“So, it gives us incredible flexibility. And ironically, it came at a stage when we wanted a little bit more liquidity within our portfolio to redeploy that capital.” 

Kemp said a second benefit of an internalised investment team is the flow of information from the asset. Kemp said AustralianSuper is invested in NSW Ports, and “one of the nice things about owning a port is you get fantastic data on the economy”.  

“We know what’s going on in the economy about two or three months before it comes out in the market by virtue of the fact that we can see how much volume is coming into the market,” he said. 

“We get real live data and information from NSW Ports that helps us more broadly across the portfolio. GIP [Global Infrastructure Partners] is a fellow shareholder of ours [but] if you’re invested through GIP in NSW Ports, you’re getting no information.” 

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