Hostplus chief investment officer Sam Sicilia has declared that for as long as he and chief executive David Elia are overseeing the fund, there will be no investment internalisation at the $110 billion fund.
However, Sicilia acknowledges that Hostplus’ external-manager model faces risks as profit margins of asset managers’ institutional business get thinner and the commercial viability of some investment capabilities becomes threatened.
Australian asset owners are notoriously fee-sensitive and some asset managers – even if they have been assigned a large mandate – may not want to dedicate a significant part of their capacity to a fund demanding low fees.
For this reason, Sicilia says Hostplus is willing to cop slightly higher investment fee as it wants to maintain a “relationship” with its managers, not just complete a transaction.
Sicilia says a relationship would go “bitter” fast if Hostplus threatened to drop a contract if a manager did not accept, say, a five basis point management fee instead of a 40 basis point fee.
“If you agree to that, are you happy? You are not happy – you’ve done it because we’re a big player in the market,” Sicilia tells Investment Magazine.
It’s understandable that asset managers may want to tap further into the retail market if margins on the institutional business are not meeting expectations, Sicilia says.
“That’s okay for them, and I want to know how that’s okay for us,” he says.
“It’s okay for us if they maintain their institutional quality and give us a third of their allocation for institutions, and have two-thirds of it, say, for retail; that can still work.
“So let’s figure out a fee that’s fair and reasonable, that rewards you for your asset management skills, and rewards us for our scale, and passes the benefits of that on to our members.”
Sicilia says his resistance to internalisation is because its fee-saving benefits simply aren’t as significant anymore and he doesn’t see any reason for Hostplus to take on the asset management risks – unless there is a need that truly cannot be satisfied by external capabilities, like “buying real estate on Mars”, he says.
“So while I’m at Hostplus, and while David [Elia] is CEO, we don’t intend to do that,” he says.
“If both of us leave, and someone else is driving, they can do it if they want.”
Defining moments
During Sicilia’s tenure since 2008, Hostplus’ assets under management surged from $7.2 billion to more than $110 billion in 2024, and its performance record has consistently made it one of the long-term top-quartile funds.
For each of the past three years, Hostplus Balanced has been hailed as the growth fund with the best 10-year performance by research house Chant West, trumping returns of similar options offered by mammoth players such as AustralianSuper and Australian Retirement Trust. Chant West defines a growth fund as having a 60 to 80 per cent allocation to growth assets.
This is despite one-year performance blips like in FY24 where Hostplus Balanced returned 7.6 per cent, compared to a 9.1 per cent growth fund industry average.
Reflecting on the investment decision that defined Hostplus in the past decade, Sicilia says maintaining the fund’s belief in unlisted assets – one of the highest exposures in the industry – has to be the biggest one.
Hostplus currently holds more than 30 per cent of the portfolio in just three unlisted asset classes – 10 per cent in private equity (of which venture capital accounts for a quarter), 10 per cent in property and 11 per cent in infrastructure.
VC is a standout asset class where the fund has “accelerated” its commitment and it paid off handsomely, Sicilia says. The fund’s successful bets on startups like Canva have been well-documented.
“You could make a commitment to a fund manager of $100 million for venture capital, but you’re only ever exposed when they draw it down from you,” Sicilia says.
“But it’s not like we can rebalance out of venture capital into non-venture capital private equity, because it’s illiquid. So when opportunities present themselves in in one area, and you go slightly overweight, so be it.”
Another important decision for Sicilia is the diversification of the property book. He says the fund rotated out of commercial office and retail before COVID hit, and increased allocation to industrial.
“It’s not like you had this idea that a virus was going to hit, but it just made sense to reduce your exposure to office and to retail,” he says.
The fund also adopted a more detailed allocation to include sub-sectors like student accommodation, medical offices, life science buildings, multi-family and single-family residential. All these efforts helped shield Hostplus’ property portfolio from the commercial real estate shocks in the past five years, Sicilia says.
“We need to do the same in infrastructure, where we’ve got a large exposure to airports and seaports and but less exposure, say, to data centres,” he says.
“So, clearly looking to build that up over time.”
On private credit, Sicilia says Hostplus has been in the space for a long time. It still has a “massive business” with Apollo and Barings in collateralised loan obligations, which caught investors’ attention as early as 2010.
“Everyone seems to have discovered that flavour of ice cream this this summer, but that isn’t true for most institutional investors,” Sicilia says.
“We all kind of smile and say, ‘OK, everyone’s on to this now, we have to find something else’ – maybe Martian real estate.”
