As much as 20 per cent of Cbus’ assets will be managed inhouse following the board’s approval of a new investment strategy last week, that takes advantages of the fund’s ability to invest with a long-term view.
The new strategy includes a huge uplift in internal resources so the fund can also set its asset allocation internally. The fund will look to directly invest in infrastructure, and Australian and international equities, alongside its existing external managers.
The $34 billion superannuation fund currently manages around 8-10 per cent of assets inhouse, mainly in cash and cbus property, and is seeking to expand its internal capacities over the next five years, particularly in equities and infrastructure.
The board also approved 25 additional team members to resource the expansion.
Kristian Fok, executive manager, investment strategy, says the investment team has been developing the plan for nine months, undertaking “extensive” literature reviews into best practice, as well as spending time with Australian and international chief investment officers to gain direct insights into a variety of models.
The new strategy positions the fund to manage the growth it will experience in the next three to five years, where it forecasts that investments will increase from $34 to $50 billion.
According to Fok, there are three driving principles behind the investment strategy change.
Firstly, the super fund is able to take a longer-term approach than, for example, fund managers or banks, which opens up a different set of opportunities and approaches.
Secondly, the superannuation fund can think and invest on a total portfolio perspective. The internalisation allows it to take opportunities in areas that might otherwise be missed due to the silo effect from mandates.
“A total portfolio perspective is not constrained by the conventional definition of asset classes. There are many investment opportunities that don’t cleanly fit in those classes and are not going to be captured because the managers have specific mandates that require them to invest in certain ways.
“There are really interesting opportunities in overlapping capability; the spectrum between property and infrastructure, for instance. You can get infrastructure that has property elements, and property which could be defined as infrastructure, and anything in between.
“If you remove some of those artificial constraints to look at the opportunities as a whole, we can look at it both in equity and debt, and that can create significantly more value to members.”
Thirdly, it is targeting investments that have a wider positive impact on its members and society. Given that a significant portion of its membership is in the construction industry, the super fund has a particular focus on the built environment.
“That is a good starting point, and some of it is reinforced by ESG,” Fok said.
“Irrespective of our desire to internalise, there are huge benefits of ESG investing. We are increasing our ESG team from one to three and other people we have who invest need to be ESG aware.”
Fok also expects that by the five-year mark the fund will have been able to reduce investment costs by 10 per cent compared to where it would have been under the old strategy, which already planned to reduce costs from today’s levels.
Another key aspect, linked to all three principles is a huge uplift of resources so that the superannuation fund can increase its ability to set asset allocation internally, as opposed to an alternative model of relying on external service providers.
“No one else is going to manage our asset allocation,” Fok said.
To facilitate this Tim Ridley, investment manager of strategy at Cbus, who oversees asset allocation, will be supported by new direct reports.
The investments team is currently split between Fok’s team, and the team managed by Trish Donohue, executive manager, investment manager. The 25 new positions will be split across the two areas. Fok’s team which has 14 members will more than double in size and Donohue’s team will be increasing from 20 to 30.
“To give us the best chance of getting the right people we committed earlier this year to our Sydney office, so there will be opportunities in both offices,” Fok says.
One of the key positions the fund has created that will directly report into Fok is investment manager, strategy and innovation. The role will focus on research, strategic partnerships, and integration with internal strategy.