Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Hostplus, Maritime Super, go all the way
The two funds have now committed to exploring a proper merger after announcing a pooled superannuation trust (PST) arrangement in 2021 that drew the ire of members of the Morrison Government.
Hostplus and Maritime Super have signed a memorandum of understanding and will commence joint due diligence with an intention to merge in 2023, with Maritime having already undertaken a “a competitive assessment of potential merger partners.” Maritime originally opted to pursue the PST structure with Hostplus after talks with Mine Super were discontinued in 2021.
“We see our already established relationship and the fundamental alignment between our funds – from our similar industry fund values to our dedication and passion for our members, employers, staff and stakeholders – as providing an excellent foundation for a successful merger partnership,” said Maritime Super CEO Peter Robertson.
Robertson was previously forced to defend the PST arrangement before the standing committee on economics, saying that the “sheer complexity” of Maritime – which has 27 different benefit categories, including five defined benefit funds – had made a true merger difficult to pull off in the near-term.
“What we have found in the past in looking at mergers was that the complexity of our fund created time and cost to get there that meant it just wasn’t in the financial interests of our members to do so,” Robertson told the committee in July 2021. “… This doesn’t preclude a merger with Hostplus or anybody else for that matter. But what it does is give us a more efficient, more easily implemented and much more cost-effective solution to what we perceived were the headwinds for our fund going forward.”
The PST, which came into effect in April 2021, allowed Maritime to access illiquid investments that its small size had made prohibitive while negating some of the cashflow problems it faced from the “cyclical decline” of the maritime industry.
“Both of those problems are now gone,” Robertson said at the same hearing. “Hostplus has almost the opposite demographic to what Maritime has. It’s a younger membership base, with high contributions and lots of liquidity – which are exactly the tailwinds you need to produce better long-term returns.”
“We’ve always outsourced to fund managers. We’ve always outsourced the asset management advice. We’ve always outsourced the custody arrangements. And we’ve always outsourced the investment of the underlying funds. All we’ve done with the Hostplus PST is package that up to one provider.”
Maritime’s MySuper product failed APRA’s 2021 performance test and was in the dreaded “dark red” zone on the regulator’s MySuper heatmap. In 2019, the Maritime Union of Australia defended the product’s heatmap performance in a letter to members, noting that fewer than 15 per cent of the fund’s members were in the MySuper product, while about 40 per cent were in the growth option and 25 per cent were in the balanced option.
“We’re delighted to be extending our strategic investment relationship with Maritime Super to now work towards a merger of our funds,” said Hostplus CEO David Elia. “We look forward to continuing to deliver exceptional outcomes for our expanded membership, including delivering one of the lowest admin fees of all MySuper funds, market-leading default investment outcomes – especially from our MySuper Balanced option which is ranked number one for investment performance over 7, 10, 15 and 20 years – and other benefits of scale.”
