Former First State Super chief investment officer Richard Brandweiner said super funds should expect themselves to be called upon when it comes to investing in key economic areas such as the energy transition, irrespective of the sometimes not so subtle political agenda around some of these issues.
At the Fiduciary Investors Symposium in the NSW Blue Mountains on Tuesday, Brandweiner said the energy transition opportunity is a megatrend that investors need to grapple with “whether they like it or not”.
Brandweiner’s comments came on the eve of the 2024 federal Budget where Treasurer Jim Chalmers handed down a $23 billion package of spending measures over the next decade for the Future Made In Australia Act – the Labor government’s flagship initiative to attract private capital to areas such as critical minerals processing, battery production, renewable hydrogen, and green metals.
Chalmers has also repeatedly urged super funds to back the vision of making Australia a green superpower.
“I know all of my friends in super are sick of the government coming down, saying ‘we want you to do this’ and ‘we want you to do that’, ‘let’s have a roundtable on it’,” Brandweiner said.
“I fully appreciate that. But the other side of the coin is true too, though, which is that we are so fortunate to have this incredible system so big in the context of our economy, dwarfing the size of GDP and the equity market.”
Brandweiner, who also held the top job at Pendal Australia as chief executive, is now chair of Impact Investing Australia.
“Regardless of where you sit on questions like fiduciary duty and other sorts of things, the way the super system gets invested will help shape the world that we all retire into. It’s just too big in the context of our economy not to play that [energy transition facilitation] role,” he said.
He said that super funds may find themselves having trouble trying to truly diversify away from the larger financial ecosystem, considering the universal ownership theory.
“If you make money in one part of your portfolio, you’re probably going to pay for it in a different part of your portfolio. Therefore, what actually drives long term returns is growth of the system – GDP growth, earnings growth and the quality of all of these things,” he said.
“It does push you to think how to invest in ways that are in members’ best interests, and things like climate, like security, productivity, and employment, are actually very relevant for the state of the ecosystem that we’re moving into.
“The reality is the cause and effect is there, the money will have those effects.”
Building resilience
MLC Asset Management chief investment officer Dan Farmer, who oversees a substantial part of Insignia Financial’s $180 billion of super assets under management, agreed with the sentiment.
“At the moment, we’re focused on delivering to the best financial interests, but then… how do you actually measure that?
“A lot of that is certainly on timeframe. If you look far enough out, a lot of those environmental impacts do start impacting the investment outcomes and obviously the further out it is, the harder it is to forecast.”
Another area of uncertainty investors are concerned about is geopolitical uncertainty. Farmer warned against drawing long-term conclusions from current events.
“We have seen sort of polarisation between the opposite ends of the political spectrum increasing over many years that feels like it’s going to be somewhat entrenched in the immediate term,” he said.
“You can talk about it [politics] all day and debate amongst yourself, but I think unless you’ve really got an edge, we’re not trying to necessarily predict those outcomes… [but we are trying to understand] how you build resilience in your portfolios to withstand a range of these outcomes.”
Frontier Advisors director of investment strategy Chris Trevillyan said that recent examples have made it clear that it’s even harder to make money from geopolitical volatility.
“Plenty of examples when Trump was first elected, and then the response of markets in the recent Middle East issues – the oil price there hasn’t necessarily moved as you would have immediately thought, so I think it does come back to the basics of investments of diversification,” Trevillyan said.
“What we’ve been putting to clients is being prepared – starting to think about some of those cases.
“The Russia-Ukraine situation, although it was very small, that was a bit of a test. But starting to think about that [uncertainty] and being prepared so that you can act quickly if you want to and need to, but not necessarily being responsive to just news that’s flowing through.”
Mercer chief investment officer Kylie Willment said the fund categorises the forward-looking portfolio opportunities of the next five years into “super cycles”, “mega trends”, and a “regime change”, which the current uncertain interest rate and inflation environment is.
“We’ve been in a multi-decade period of the globalisation phase, which was obviously one of those deflationary forces that we’ve relied on for a long time, but the politics… seem to have led to more of a regionalisation or deglobalisation, and I think that is material in the way we think about portfolios and returns and opportunities.”
