Funds SA, the $50 billion investment manager for the South Australian state government, is moving towards a total portfolio approach, with chief investment officer Con Michalakis determined not to miss a good investment opportunity just because it doesn’t fit into an asset class bucket.

In the latest episode of the Investment Magazine CIO Series, Michalakis revealed that Funds SA is moving towards a “lite” version of the total portfolio approach, meaning that the fund is incorporating some TPA principles into the organisation by reducing investment team silos and investing more for a total fund objectives, but not adhering to them in an “extreme” manner.

“We’re not high priest monks of the TPA approach, but we can think about how to design portfolios [with its principles]. That’s a breath of fresh air,” Michalakis said.

“Underwrite well, generate a return, and then worry about where you want to stick it. That’s one thing I love to change in investing – don’t be a slave to benchmarks.”

Fund SA does have the advantage of not having to comply with the APRA-regulated performance test. Its biggest client, the $40 billion Super SA, is a statutory entity overseen directly by the South Australian government.

But Michalakis said Super SA has given him the directive to make the scheme more peer competitive, and that the TPA-lite approach is critical to that objective as it provides room for Funds SA to have innovative sleeves of investment. There is an opportunistic bucket, for example, which houses some insurance-linked strategies and absolute return strategies.

To facilitate the transition towards TPA-lite, Michalakis says there has been extensive communication between the senior leadership team and the broader investment team. TPA can put strain on investment team structure because a sharper focus on total fund objectives usually means there is more fierce competition between asset classes for capital.

In practice, this could mean certain asset classes, even if they are high-returning, could be asked to sacrifice capital to meet the total fund risk and return objectives.

“The most important thing was to get the team together, and we do this with the broader investment team, with the senior leadership team and with [CEO] John [Piteo], and say it’s not personal. We’re not taking strategies away from you,” Michalakis said.

“That conversation has gone very well actually, within the team, [there] hasn’t been really any turnover.”