In November last year, AustralianSuper’s investment team was watching storm clouds pile up on the horizon. Trump was headed back to the Oval Office, and despite markets showing their appreciation for both a decisive election result and the prospect of corporate tax cuts, AustralianSuper thought the first six months of his presidency would likely produce significant volatility.
“And it’s certainly panned out that way,” AustralianSuper CIO Mark Delaney told the Asia Pacific Financial and Innovation Symposium as part of a panel moderated by Hostplus CIO Sam Sicilia.
“But that volatility has occurred against a pretty solid macro backdrop – and while the environment is likely to remain volatile, it might not be as volatile as it’s been.”
A complicating factor in that prediction is AI, Delaney said. Markets were already having a hard time answering the question of whether ChatGPT and other large language models will actually change the world – and so whether Nvidia is worth three trillion dollars – even <em>before</em> heavyweight competition arrived in the form of China’s DeepSeek.
“People are now wondering where AI is headed,” Delaney said.
“But in any of these technologies that have unfolded over time, there’s always periods of volatility as they spread out into the community – and that should be expected. Do you think AI is going to be something or not? Of course you do.”
But – for all that change – Delaney said that AustralianSuper hasn’t been tweaking its portfolio (recently, at least; it directly bought 2.42 million Nvidia shares in the three months to December 31 after an underweight to the US market dragged on performance through the first half of 2024).
A good long think
The $92 billion VFMC, on the other hand, is having a good long think about how it wants to invest in what its CIO, Russell Clarke, believes is a “much, much more complex world” than the one that existed 10 to 15 years ago. Back then, if you constructed the portfolio correctly and were fully invested, “you generally did pretty well because most asset classes did pretty well”.
“You could build the portfolio from the bottom-up,” Clarke said.
“Whereas now I think you’ve got to take a more holistic approach to running a portfolio – being more intentional about the risks you want to take and how you want to position the portfolio rather than let the base beta exposures drive the return for you.”
“You also have to be prepared to move the portfolio, or evolve it more rapidly if necessary, is another element that’s probably going to serve us well in this environment. That requires a better understanding of the risks in the portfolio, and a lot of us have put a lot of effort over the past five years into building better risk systems and better measurement of risk so you can understand what risks you have.”
With a more volatile macro backdrop, issues that dominated the investment landscape in the early 2020s, like sustainability, sometimes seem to have fallen by the wayside. But the integration of climate-related risks and energy transition opportunities remains “central to the management of portfolios”, according to Allison Hill, State CIO at QIC.
“We do see it from both a risk perspective in the sense that there is a chance of regulatory risk in Australia or other parts of the globe that we need to consider in terms of what that will do to asset valuations and cashflows, but also opportunity sets,” Hill said. “There’s a huge range of new technologies that are emerging and new assets that are required to accelerate the transition.”
“We’ve got a firm commitment to transition to net zero, and we’re able to achieve that in our property and infrastructure sectors given that, generally speaking in those sectors, either whole ownership or substantial ownership of quite large assets and so we’re working with governments and the managers of those assets to put in place and implement transition plans.”
Superannuation funds are subject to an ever-evolving regulatory framework, with APRA and ASIC increasingly scrutinising private market valuations, internal investment management and fund governance. But when questioned as to how AustralianSuper was adapting its strategies to make sure the portfolio was both resilient and compliant while also pursuing alpha opportunities, Delaney said the two goals were “not mutually exclusive”.
“They’re actually very compatible,” he said. “The regulators do a critical job in the sense that they’re the mechanism that maintains public confidence in the system, and that underpins the whole system. Their guidance really just reflects good practice – whether it’s good practice around valuations, member equity, good governance and organisational strength and transparency.
“They’re all the things a good trustee or fiduciary would seek to deliver on. If APRA is challenging the industry to be better, that must be in everybody’s best interests. Being better must mean you make more money for members, and make it in a more secure and sound way. It’s just part of the evolution of the whole industry.”
