L-R: Nathan Bode (Frontier Advisors), Sonya Sawtell-Rickson (HESTA), Andrew Fisher (ART) and Paul Newfield (Frontier Advisors). Photo: supplied.

While geopolitical tensions might bring downside risks and investors spend considerable time formulating portfolio protection against this issue, two of Australia’s largest super funds have made it clear that it’s not an area they are looking to gain an edge.

At a Frontier Advisors conference in Melbourne on Thursday, Australian Retirement Trust head of investment strategy Andrew Fisher said the $280 billion mega-fund has many competitive advantages, but “being smarter than the market” is not one of them.

“We don’t think we can have a realistic edge in that space [analysing geopolitical risks],” he told the conference in Melbourne.

“Being large is a competitive advantage and will see us providing liquidity to markets, so generally speaking, faking those reactions [to events] and taking the other side of providing liquidity into them isn’t typically how we will respond.”

“Despite everything that’s going on right now, they’ve tended to be relatively contained. So unless a genuine conflict between US and China erupts, I would say in most cases geopolitical noise will likely to be treated as a natural disaster-type of scenario.”

HESTA chief investment officer Sonya Sawtell-Rickson said the fund conducts scenario analysis about geopolitical risks but it’s hard to run an investment process on the basis of that in a “consistent and repeatable” way that delivers performance through time.

She said the $84 billion health industry fund relies more on quantitative metrics and processes and uses scenario analysis “as an overlay” to test its thinking.

“Dealing with the immediate crisis is one thing… and having a framework where you can do that in these complex issues is really critical,” she said.


However, Frontier Advisor director of research Paul Newfield warned that too much information can work against asset owners.

“A wealth of information creates a poverty of attention,” he said.

“I do think funds can, should and do analyse qualitative on top of quantitative information – deeply profound scenarios that can have an impact, but I would gauge against trying to analyse thousands and thousands of things on a continuous rolling basis.”

Amid these risks, though, Sawtell-Rickson said HESTA is carefully defending its liquidity which she said is crucial for creating investment optionality, “especially as an Australian investor in a super fund where in a crisis you get hit by currency and the liquidity demands and the historically depreciating Aussie dollar”.

“You also often get members switching despite our best efforts to encourage long-term hold. Those two things obviously pull liquidity out of our portfolio, which then when you’re wanting to lean in and take advantage make it more challenging,” she said.

“People think that investing directly gives you more liquidity. I’m not sure that’s always true.”

There is also the maturity piece of the overall superannuation system, Sawtell-Rickson said. As more funds could see up to a third of their members entering retirement in the next decade, she said the quality of overall liquidity modelling will need to get better.

ART, meanwhile, always treats liquidity as a top priority due to it being a critical competitive advantage, Fisher said.

“We have to be really thoughtful about not taking liquidity from markets and everything that we do, and something we’re really focused on at the moment is thinking about long-term strategy,” he said.

“How do we ensure we’re investing in things where we are using our liquidity to advantage?

“We’re thinking about things like transfer pricing across the portfolio of liquidity, trying to get much more sophisticated and more like how a financial institution like a bank would actually think about managing its balance sheet.”

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