The merger between Mine Super and TWUSUPER has put Team Super, the combined fund, “in the shadow of scale”, according to chief investment officer Seamus Collins, and it’s now focused on bedding down its systems and investment integration.

“We’re $23 billion – we’re no longer a small fund, but we’re not a big fund,” Collins tells Investment Magazine.

“The problem with technology and internal capability is that you don’t tend to grow them in a gentle, incremental way, a little bit at a time – they’re step functions. You need to hire data people, build data governance structures, and it is an ongoing challenge.

“We are now, as we look forward as a merged team with a more substantial footprint, thinking about what that looks like.”

There’s a well-worn path that Collins, during his previous life in the asset servicing industry, has walked with other funds as they scaled up: better technology, better decision support, better analytics and risk systems, and better process governance and reporting holding it all together. But while investment teams benefit from having more information to judge the quality of their decision-making, there is also a question to be answered about how granular and immediate that information should be.

“How should a trustee investment function be staring into the market intraday?” Collins says.

“Because I would argue that they need to be a little bit removed to look at the trend, but you can’t be looking at daily movements or weekly movements and dwelling on the ups and downs. We are not an internal asset management organisation; that is the biggest step function of all.

“Once you cross the Rubicon of managing money, culture, recruitment, technology, risk, everything changes – you are fundamentally now a different organisation.”

And Collins isn’t ready to cross the Rubicon just yet.

“I’ve done [internalisation] in another world, and I’m very aware of what’s involved. It’s a tremendous strategy and I admire my large fund colleagues who oversee those internal teams and deliver fantastic results.”

But the level of foundational work required to build a successful internal investment capability is “absolutely enormous” and Collins says he wouldn’t take it on lightly.

“That is a piece of work that will be for the person who follows me – I’ll start to look at the foundations but that is a successor strategy, I suspect.”

And there are more immediate problems to deal with. After topping the Chant West growth charts for four years running, Team Super found itself a ways outside the top 10, albeit with what would have historically been strong returns across its high growth, growth and balanced options (11.86 per cent, 10.54 per cent and 8.78 per cent respectively).

“We’re not Robinson Crusoe here – it was some challenges in our manager implementation,” Collins said.

Some stock calls didn’t quite come off; underweighting CBA was chief among them. But in Collin’s view, traditional active asset management isn’t able to adequately deal with what he calls “the halo effect”.

“In the case of CBA, there’s just this view that this is clearly Australia’s best bank – and nobody is disputing that,” Collins said.

“They’re just disputing by what margin that should allow for a superior current valuation. [Last year] was a really challenged active management space. You need to have very high conviction in a very narrow, concentrated group of stocks in order to outperform the benchmark, and in many cases that was a really hard place to be for an active asset manager.

“If your model flashed red and told you that CBA was overvalued two years ago, what’s it going to be doing two years later when it’s gone up by 50 per cent? It’s a bit like a game of chicken.”

The dominance of CBA in the Australian market is so troubling for some super funds that at least one is reportedly considering an overhaul of its Australian equity mandates to make sure it always has a market-weight position in the big four banks. That’s a conversation “every super fund will be having” and which Collins and his investment team have also had. It’s an understandable reaction to a “quite painful situation” – when something goes wrong you want to make sure it doesn’t go wrong again.

“Ultimately it comes down to you probably need to manage your overall active risk budget at a headline level and what comfort level you have with that. If you start getting into ‘Okay, we’re going to litigate what makes up that active risk budget and start to micromanage the componentry of active risk’ I think you go down a road where you probably would question whether you can take the heat in the kitchen of active management.

“At the point where you’re interceding and saying ‘Okay, we’re going to give you a mandate but we’re going to put up those guardrails’ – philosophically, as a team we came to a view that wasn’t the right approach. More broadly, will we have conversations with active managers about how they handle super high stock concentration or sector concentration risk? Absolutely – 100 per cent.”

Collins says he is enjoying post-merger life – despite the macro headwinds the actual transfer coincided with – but is now focussed on true integration of an investment team that sits across multiple states. To that end, there’s going to be a lot more travel between Sydney and Melbourne.

“Bringing the investment functions together has brought in diversity of thought, and I think that was probably something we were less prepared for because we thought that two industry funds would be broadly similar,” he says.

“But under the hood there were different philosophies, different ways of doing things and that’s a challenge we are now starting to work through.

“All of the focus in the lead-up was on the mechanics, all of the focus after the go-date has been on the teams. That’s been harder because of physical segregation in terms of the vast majority of the TWU staff being in Melbourne and the vast majority of the legacy Mine Super team being in Sydney and Newcastle. Cultural melding takes more time when you’ve got that physical separation.”