Governance issues and investment team talent retention in troubled profit-to-member fund Cbus have been flagged as concerns by researcher Morningstar.

In an update about the Growth Plus Super offering from Cbus sent out on Tuesday morning, Morningstar said the fund’s union connections and lack of independence from the Australian Labor Party had affected the researcher’s “conviction” in the fund.

An expose by Nine media organisations uncovered corruption within the Construction, Forestry, and Maritime Employees Union which led to three members being forced off the fund’s board, which is chaired by former Federal Treasurer Wayne Swan.

“While turnover has not been high across the broader investment team and replacements have mostly been made, it’s hard to view Cbus positively for its culture or ability to retain key talent as things stand,” the note said.

The researcher criticised the fund’s turnover and change across the senior investment team. After chief investment officer Kristian Fok replaced chief executive Justice Arter in May 2023 and Brett Chatfield stepped into the CIO role, their leadership was marked by the departures of deputy CIO Alexandra Campbell and head of total portfolio management Mark Ferguson.

Those departures, in May 2024, were followed by the departure of Cbus chief strategy officer Alexandra West in July.

They were able to find replacements in Leigh Gavin as head of portfolio strategies and Justin Pascoe as head of portfolio construction, both from AustralianSuper; Hostplus’ Jordan Kraiten to lead private markets and infrastructure; and Myooran Mahalingam to take on head of equities.

Morningstar senior analyst David Little told Investment Magazine the fund’s investment team has a strong track record, but consistency and competitive edges are not identifiable at this point, largely due to a reliance on long-term asset allocation and a refreshed dynamic asset allocation process still being installed.

“They had continued turnover at the senior level, it hasn’t necessarily been a broader issue across the organisation and they have been able to replace a lot of the key staff that have left with others that have a strong background,” Little said.

However, a spokesperson for Cbus pointed Investment Magazine to the experience of Chatfield, voluntary turnover being only 3 per cent in the last year, and the fact that the researcher’s rating remains unchanged from the previous year.

“Cbus’ investment team, led by CIO Brett Chatfield who has been with the fund since 2013, consists of around 100 highly experienced investment professionals,” the Cbus spokesperson said.

“The average industry experience across the senior members of the investments team is 24 years and the average tenure at Cbus is five years.”

But Morningstar notes the fund had turnover issues in the past and almost flagged it as an issue in 2022.

“We were wary of some of these issues back then but decided not to pull the trigger [on changing the rating],” Little says. “Given the moves that ASIC has since made and further challenges, we decided to flag it.”

Underwhelming governance

Morningstar also raised concerns about the influence of union affiliates sitting on the fund’s investment committee.

“A lot of those industry representatives are representing that membership base, but they’re also now public-offer,” Little said.

“Our concern more relates to some of the governance concerns around the quality of the governance and whether it’s appropriate for such a strong level of [union] representation sitting on investment committees and board to large extend and just the level of independence and the investment credibility quality.”

Little said Cbus does have a structure in place to ensure directors have requisite skills but is still “a rung below” in terms of overall investment quality compared to peer boards.

“That higher level of union representation means they’ve got less credibility versus some of the other peers that we rate,” Little said.

The Cbus spokesperson said their board structure has historically delivered positive results for members in previous decades.

“Cbus has had union representation on its board for 40 years, and like other industry funds, has benefited greatly from the equal representation model – there has been no change to that structure since Morningstar’s previous reviews,” the spokesperson said.

“Cbus notes it is highly rated by other research houses, and the fund looks forward to continuing to work with Morningstar on its ongoing reviews.”

Behind the curtain

Morningstar said that while the fund’s scale and ability to tap into private assets was difficult to replicate elsewhere in the industry, it also “lacks broader appeal to be considered better than peers”.

“We don’t think, as it stands, there’s sufficient positives to warrant a high score,” Little said.

The researcher also noted the fund’s growth option still had higher exposure to growth assets relative to the 70/30 standard for the style.

The researcher said despite “subpar” shorter-term relative terms, the fund delivered respectable returns over time despite the unlisted property being a material headwind over the year to June 2024.

Little said a risk in the fund is the process that leans more on unlisted assets than its peers.

“We probably feel overall there’s probably an overriding stronger reliance on the unlisted exposures and pushing more heavily into some of the credit sectors within fixed income,” Little said.

Little said the researcher doesn’t have a negative view of the fund’s absolute exposure on unlisted assets, but it does create a risk of the “nimbleness” of the portfolio.

He added there are challenges with valuing the unlisted assets which has been “tricky”, but Cbus had offered some level of transparency.

“But we don’t have full line by line visibility,” Little said. “There’s a lot of private transaction involved so there are limits to transparency.”

The researcher said the fund remains “an investible all-in-one superannuation option” but welcomes increased stability in the investment team.