The $44 billion Funds SA has arrived at a “really important point in its history”, says chief executive John Piteo, as the South Australian government-owned asset manager completes the first major external review of its investment functions.
The review is one of the operations initiatives marshalled by Piteo since he took over the top job from Jo Townsend in 2023, after almost three decades with the fund.
In his first media interview since stepping into the role, Piteo tells Investment Magazine that the review encompassed many facets of Funds SA’s investment operations, including strategy; processes; people and culture; technology; and risk appetite. Its external consultant offered recommendations in seven areas, from who should sit on the investment committee to how to better use its asset consultant JANA.
But one observation, which was that Funds SA’s investment team has a tendency to over-analyse, stuck with Piteo, as the review identified room for improvement in the efficiency of decision-making.
“Most investment professionals start out as analysts. They love information. They love to analyse the data and constantly look for how they can become more and more confident about a decision that they need to make,” Piteo says.
“Sometimes what that does is it creates perhaps a lack of decisiveness.
“You’re never going to have perfect information. It becomes a little bit like the law of diminishing returns.”
For this reason, Piteo believes the co-chief investment officer model currently picking up steam – adopted by both NZ Super and REST last year – would not work for the current Funds SA. It was a leadership option Funds SA evaluated during the review, but Piteo is not inclined to add “an additional source of confusion”.
“I like the idea of single-point accountability,” he says.
“The team also needs a single point where they know this is the person that is really running the show, because everyone has different opinions about certain components.”
Funds SA appointed Hostplus executive Con Michalakis as its new chief investment officer in December. A South Australian himself, Michalakis headed the SA-based Statewide Super’s investment team before it was folded into the hospitality industry super fund in a 2022 merger.
Piteo says appointing Michalakis was the “missing piece” of the review, with the majority of its recommendations actioned in 2024 under acting CIO Matt Kempton. Piteo says the right CIO needs to be compatible with Funds SA and excel in four areas: investment philosophy; performance track record; ability to lead and inspire the team; and stakeholder relationships.
“The investment team in the main, initially they were a little bit apprehensive, if I’m honest, because they probably never had a review of this type performed,” Piteo says, but the intention is to make it a standard operational procedure and conduct it again somewhere down the line.
“Matt’s done a great job of actually stabilising the culture, putting it on a really solid footing, and that’s a really good foundation for Con to come in now and add to that moving forward,” Piteo says.
Unique model
Funds SA invests on behalf of 11 superannuation, endowment and insurer clients, and the biggest one is state government pension fund Super SA. There are both government and non-government, taxed and non-taxed clients, and Piteo says the Funds SA’s structure as a “centralised investment manager” is unique.
“We have to effectively manage, in a pooled environment, all of the dimensions of all those different clients, in a way that minimises frictional costs around structuring, but then also maximises the ability to take advantage of things like economies of scale,” he says.
“I feel that we’ve got a very strong model to do that.”
For example, Funds SA can cross-position defined benefit and defined contribution superannuation client accounts and avoid the need to buy and sell assets in the market, Piteo says.
“The transactional cost savings are enormous. Other states have actually separated those two pools away, South Australia hasn’t,” he says.
“I think that’s a good thing, because it means that we’ve been able to really maximise the ability for the DB to have a really interesting investment strategy that has a lot of unlisted assets in it.”
Piteo is acutely aware of the choice environment super funds now operate in and admits the cash flow implications of it are one of the biggest risks to Funds SA. Super SA is a limited public offer fund and cannot actively accept new members who have not previously been in its schemes, but existing members can switch out of the fund.
“The biggest risk is that we don’t work well together [with Super SA] to deliver a range of products and solutions to the membership, which maintains attractiveness for the scheme as people roll out of the accumulation phase into the decumulation phase,” Piteo says.
“Other superannuation funds have a single, responsible entity model [for investment and administration], and we don’t.
“The good thing is that we actually have an exceptional partnership model between both organisations. It’s something we value really highly, but we need to make sure that we keep every part of that model working well.”
Super SA is also not APRA-regulated the schemes it administers are exempt public sector schemes.
“APRA supervision is a bit of a double-edged sword. Those who are subject to it complain a lot because they say, ‘Oh my God, there’s so much work’,” Piteo says.
“But when you’re not subject to it, you really need to align yourself – not only to the principles – but measure yourself against the prudential standards, so that you are using that as a template for best practice.”
Beyond the spreadsheets
A piece of unfinished work Funds SA is continuing in 2025 is a five-year investment and data project. The fund has fully committed to the Matrix data management platform with FactSet plug-in, which provides portfolio analytics, performance and attribution, among other things. A significant amount of work went into data mastering, Piteo says, to ensure the data are presently accurately and classified correctly.
The next stage is for the team to integrate and utilise more of that better quality data in their day-to-day, he says.
“Previously, we just had a bunch of people with spreadsheets and sucking data in from all over the place and models that weren’t governed,” Piteo says.
“But then we’ve really modernised, and I think we’ve got an industrial strength approach to this.”
Piteo concedes that the most painful aspect of the program was project management. Numerous parties’ actions needed to be coordinated, including the fund’s data and analytics team, investment team, custodian, and platform providers.
“We struggled, and I’m happy to admit it,” he says.
“Some people were dedicated to the projects, but other people had day jobs as well. So trying to coordinate and get clarity around exactly what the specification for a particular issue was difficult.
“But I think we were big enough to realise that, if things are going off track, it’s okay. Let’s not beat ourselves up.”
Funds SA ended up underspending the budget for the program, Piteo says, which rarely happens and in a sense is the fund’s way of “under promising and over delivering” to the board.
“We are very clear on ensuring that we get value for money out of our technology investment…because it’s other people’s money,” he says.
“The last thing we wanted was for stakeholders to have surprises that they weren’t anticipating.”
