The thinking behind HESTA’s new investment strategy

By

10/04/2017

OPINION | Pension funds worldwide face the challenge of continuing to deliver sufficient investment performance for their members in an environment where interest rates are expected to stay lower for longer.

Australian superannuation funds can’t avoid this reality. At HESTA, we know we have to continue to set ourselves ambitious investment targets. Core Pool, our default investment option, has an investment objective to deliver CPI+4 per cent a year over 10-year periods.

In the current investment climate, this is ambitious. To continue delivering members the best possible returns, we need to take a closer look across the spectrum of our investment activities, from governance and the capacity of our internal team, through to our relationships with external managers and investment execution. Business as usual won’t keep getting us to our long-term targets in a market where there is strong global competition for quality assets.

We’re putting in place a new five-year investment strategy and further building our team to deliver outstanding strategy and execution. This will help us continue to achieve strong, sustainable long-term returns and capture the benefits of scale arising from the fund’s future growth.

This is an opportunity to establish the right investment processes for a constantly evolving and complex marketplace.

As part of our review process, we consulted strategy experts Willis Towers Watson. They brought a global perspective that helped us explore the governance models of leading pension funds from around the world. We recognised how critical it was to have the right dedicated structures and skills in place and concluded that creating a specialist investment committee was an essential step in strengthening HESTA’s governance practices.

New investment committee, expanded investment team

The investment committee will provide specialist expertise to supplement the skills and experience we already have at board level. This will allow us to commit dedicated time and expertise to examining leading-edge investment strategies and will provide a conduit for new insights the board can consider. The committee will comprise both HESTA directors and expert investment advisers; its chair will also be an independent director on our board.

We are expanding the capability and capacity of our investment team.

Our relatively small team has, for many years, punched well above its weight. Over this time, we’ve grown to have more than $37 billion invested globally.

With strong competition for assets, particularly in private markets, our internal team needs to be able to deepen partnerships with third parties and keep us at the forefront of investment thinking. Accordingly, we’re enhancing the capacity of our team to explore additional leading-edge investment strategies and improve early access to market opportunities for our members.

This will allow us to harness our strong growth in funds under management to capture benefits of scale for members. As one of the country’s fastest-growing funds, this affords us an opportunity to enhance long-term net returns for members.

Stronger relationships with managers

We will continue to invest largely through investment managers and look to build on the strong long-term relationships we’ve developed over many years with talented managers by further tailoring mandates specifically to benefit our members. Such partnerships will also enhance our ability to identify market trends and themes that can inform broader portfolio decision-making.

Our strong growth in funds under management also means we can explore where further development of our direct investment capability will benefit members. This is particularly important in private markets, where we can use our scale to access a greater number of high-quality investment opportunities from different sectors around the globe.

We must continue to meet challenges and deliver for members. Investment markets are constantly changing and are increasingly complex and interrelated. Our strategy will gear up HESTA’s investment team to take full advantage of our position as a relatively large, patient, long-term global investor. This unwavering, long-sighted focus has underpinned our strong investment performance for members and will ensure we continue to make a real difference to their future retirement.

Debby Blakey is chief executive of HESTA, a $37 billion industry fund for workers in the health and community services sector.