Equipsuper is utilising enterprise risk management (ERM) to focus its investment strategy on member outcomes in retirement.
ERM is a holistic approach to risk, across the whole of the business, to minimise impacts on capital and earnings, and includes areas such as strategy, operations, investment risk management systems, data management and integration.
“You start looking at investments in a different frame, through a different lens. It’s allowed us within the fund to have different conversation with the investment committee and the board,” said Nicholas Vamvakas, acting chief executive and executive officer of risk at Equip, at Frontier Advisors annual conference.
He added that moving away from peer comparison to risk appetite was the way risk should be framed, as there was no victory for the member in achieving a minus 8 per cent return compared to the markets minus 9 per cent.
“We can now talk about not worrying what HESTA has done in terms of performance or what AustralianSuper has done in terms of performance, rather, what do our members expect us to do and how are we going to get to that?
“You set a risk appetite around that and you set up new metrics, and if you are tracking outside of those metrics you may actually take some portfolio wide action,” says Vamvakas.
He says that with the currency overlay, for example, it was not about going from 15 per cent hedge to 20 per cent hedge, rather it was actually asking should there be any currency exposure at all.
“We are looking at multi-asset class and we are starting to talk … how we are going to replace 70 per cent [of a member’s income], looking at drawdowns through crisis, and how are we going to manage volatility in the portfolio, so at the other end of this equation we are going to get maximum member outcome.”