AustralianSuper is set to manage around $250 billion in funds in five years. Not since the 1950s and 1960s, when AMP as a mutual had no peers, has one organisation towered over the investment management industry.
It is ironic that part of the AustralianSuper growth explosion came at the expense of AMP and, like the AMP of old, AustralianSuper is a mutual organisation with no shareholders.
At the ADC Leadership retreat on the Gold coast, AustralianSuper’s chief investment officer and deputy CEO Mark Delaney captivated the audience as he set out AustralianSuper’s plan, but he was talking under the Chatham House Rule, so we agreed to talk later.
He says AustralianSuper has switched to managing almost all its Australian shares and rarely uses outside Australian fund managers for investment in leading local companies.
The AustralianSuper investment strategy thrust is now directed towards the long-term strategies of the companies in which it invests. This is diametrically opposed to the strategies of the short-term analysts who currently crowd the corporate investment briefings.
The fact that our largest fund manager is requiring different strategies from boards and top managers will, over time, dramatically change the management of Australian companies away from short-term profitability. Longer-term investment will be required.
Delaney says that from time to time leading companies will encounter reverses and the shares will be trashed by short-term thinking investment managers. Of far more importance will be whether the long-term plan is intact.
AustralianSuper has always had long-term investment criteria as a basic aim but the shift of money out of retail funds into AustralianSuper suddenly means it will be the standard-setter.
Delaney explains that in its own operation AustralianSuper plans in five-year cycles and in 2017-18 it was managing around $140 billion. It projected that the combination of new money and investment returns might enable it to reach $200 billion in five years.
Two years later, in June 2019, already the total is set to soar above $180 billion and by 2023 looks like exceeding $250 billion---- an incredible $110 billion increase on the 2017-18 level.
AustralianSuper will now bring forward its plans to be a Melbourne-based global investment operation and the largest investment house that the nation has ever created.
In my view the fear that this mammoth organisation is going to be controlled by unions or employers is fantasy.
The royal commission has cemented in the investment management industry that they are trustees for the beneficial owners of the money they manage. To act otherwise is now illegal. However, I strongly believe that all major superannuation funds, whether they be retail or industry, must now have much greater levels of disclosure. But the rules must exactly the same for all funds. Much greater disclosure by all funds is what the new proposed legislation should concentrate on.
Unless there is some major scandal that is suddenly uncovered, political fiddling with boards of giant successful mutual organisations like AustralianSuper is both stupid and dangerous and will create a justifiable political backlash from fund members akin to Chris Bowen’s retirement and pensioner tax.
Delaney explains that in past years their Australian shares invested one third in indexed linked securities; one third via outside fund managers and one third by its own managers.
Inevitably because of the size of the portfolio the external and internal managers were investing in the same stocks and the internal managers with their longer-term focus performed well against the high-cost external mangers.
The great problem with the Australian market is that in the top stocks there is a big concentration in banks and resource companies. Investing abroad enables a greater spread of risk and international shares are now one third of the AustralianSuper portfolio, compared to 22 per cent in Australian equities. The Australian percentage is reduced by a higher-than-normal cash component, reflecting caution with the Australian market.
AustralianSuper manages about half its overseas equities out of Melbourne with the remainder managed by overseas outside managers.
Delaney says the international availability of information and a willingness to travel enables the AustralianSuper international mangers to achieve returns that match or exceed most of the international managers.
But AustralianSuper is planning a greater presence in London and New York.
In infrastructure investment AustralianSuper invests both in its own right in projects like Sydney’s WestConnex and through IFM Investors, which manages infrastructure for 27 Australian superannuation funds led by the industry funds. IFM has $55 billion in infrastructure assets as part of a $126 billion portfolio of investments--- about three quarters the size of AustralianSuper.
While obviously an important part of IFM funds is Australian Super money, in combination we are looking at close to a $300 billion centre of local and global investment in Melbourne, which means that both Sydney and Melbourne now share Australian capital provision. A decade ago, Sydney dominated the scene.
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