Superannuation funds will need to grapple with the implications of how artificial intelligence and technology will affect investment strategies, outgoing chief investment officer of the $90 billion REST Super, Andrew Lill, has warned.
In an interview with Investment Magazine as he steps down after almost five years as CIO, Lill says the big challenge ahead for his successors, and other super fund CIOs, was coming to terms with technology and specifically artificial intelligence (AI).
“The next source of alpha for information analysis in investing is going to be the role of AI,” he says.
“Technology is revolutionising everything we do in society.
“We [REST] have been investing significantly in our tech and data platforms as a source of alpha.
“My successor will have to take on the challenge of artificial intelligence and exactly how AI will play a role in investing.”
Lill is speaking on behalf of a fund with more than $1 billion invested in US artificial intelligence hardware company, Nvidia, which was bought by its external fund managers in 2022.
The NASDAQ-listed company, which traded around US$20 a share in the year REST bought it, is now worth around US$140.
Lill says the investment potential of technology companies should never be calculated using traditional investment approaches which look for hard assets to value, such as bricks and mortar.
Technology companies, he says, are a combination of their brand name and their technological potential.
He warns that investment professionals should “never rule out the [future potential] value of technology companies and how much they could continue to rally over successive years”.
“Whether it is Nvidia or Tesla or Google, it’s very hard to apply traditional models to how much their technology could grow their earnings over the next 10 years if AI really takes off,” he says.
“It’s very hard to model the value of companies that are going to be driven by brand.
“It’s not going to be about investing in bricks and mortar and manufacturing plants.”
Value of assets
As chief investment officer since July 2020, Lill has seen assets under management of REST, founded to cater for workers in the retail sector, grow by almost 70 per cent, from $54 billion to more than $90 billion.
While Lill insists that REST has not bought any cryptocurrency or bitcoin assets, he says investment managers need to keep an open mind about emerging asset classes.
“As an investor, you shouldn’t rule anything out,” he said.
“It good to stay watchful on the change in the investment options we have – but we [at REST] have no plans to invest in crypto.”
Under Lill, the fund’s investment philosophy has increasingly been shaped by its member cohort which is one of the youngest in the country.
About a million of the fund’s two million members are under thirty. Some $85 billion of its total $90 billion in assets are in accumulation mode with most of its members opting for the default MySuper fund option.
It’s a fund which now has more than $5 billion a year in net cash inflow.
“One of the things I’ve been very pleased to bring to our investment approach during my tenure is to respond to the younger membership profile,” he said.
Lill says there are megatrends that will have an impact on the lives of REST members over the next decades which are shaping the thinking of its investment team – digitalisation, demographics, decarbonisation, debt, and deglobalisation.
Investing in the decarbonisation process of the economy has been a big theme of Lill’s time as REST CIO.
The fund has a portfolio of renewable energy assets including a recent commitment to invest $1 billion with renewable and clean energy infrastructure manager, Quinbrook Infrastructure Partners which will see REST invest directly into Quinbrook’s Net Zero Power Fund, as well as making co-investments in its renewable energy projects in the US and Australia.
Announcing that deal last November, REST said the investment would give it exposure to a range of assets, such as solar and battery projects, as well as green data storage centres, including Quinbrook’s Supernode green data campus in Brisbane.
Investment in wind
REST is also the only super fund in Australia that has 100 per cent ownership of a wind farm – the Western Australia-based Collgar Renewables, 260 km east of Perth.
It is also investing in the Octopus Australia Sustainable Investments fund which has wind, solar and energy storage projects.
“We’re actively reducing the carbon in our equity portfolios,” Lill said.
It has reduced its carbon intensity of the fund by 50 per cent since 2019 but he points out that navigating the energy transition will be a complex challenge as it will not occur in a linear fashion.
“When it comes to the energy transition theme, we are wanting to be quite diversified across different sources of generation, transmission and energy storage as it is still quite unclear as to where the real (investment) value will lie.”
That, too, is another big challenge for his successor who has yet to be named.
When Lill talks about his “successor”, the answer could be “successors.”
The fund has announced that Lill’s role will be handled in the interim by two CIOs until his replacement is announced.
They are Simon Esposito, head of private markets and deputy chief investment officer, and REST’s head of listed assets, Kiran Singh, who joined in May 2021 after being hired by Lill.
Lill won’t comment on whether the move to replace him with two acting CIOs is going to be a model for the role going forward, with two people jointly handling the investment role, or whether it could be a contest between the two for the top job – or none of the above.
He points out that the New Zealand Superannuation Fund has just appointed joint chief investment officers.
He also argues that the demands of the role of the CIO of big super funds have increased significantly in recent years.
He said the role of the super fund CIO these days includes understanding technology and data as a source of alpha, and the importance of having an in-house technology system that can support more internal investment management.
“It really requires a technology engineer to bring all that together for large amounts of capital,” he said.
“The other part of the role is managing increasingly bigger teams of people including people based outside of Australia.”
While REST still has some 80 per cent of its assets managed externally, Lill has worked hard to build up the investment team which now includes 67 people directly involved in investing, either directly or dealing with external managers, including five in London.
Set up for internalisation
He is leaving REST well set up for a move to more internalisation in the future.
Another move in this direction has been setting up an in-house team to invest in global equities which Lill says is expecting to receive board approval to start investing by the end of the year.
“This is about building expertise,” he said, hastening to add that REST “has absolutely no intention to replace any of our external managers at this stage.”
Lill is not saying what his next job is.
He joined REST from Morningstar where he worked for almost seven years, the last four at its Chicago headquarters. Before that, he was at AMP Capital for almost five years.
“I haven’t updated anyone yet as to what my next moves are, but I am excited for the next big role.”
But he is pleased that during his time as CIO, the fund has “gained a clear identity as a fast-growing super fund with young members.”
“I feel like REST has regained its identity and growth.”
“It is clearly in a position of being one of the strongest super funds in Australia.
“I feel good about moving on and having taken REST to the next level where it has a clear platform for growth going into the future.”
