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Aussie Super’s insourcing journey updated
(pictured: Mark Delaney)
While the investment insourcing trend by big super funds is having a fundamental, and only relatively recent, impact on the structure of the institutional investment industry, Australia remains behind the times, according to Mark Delaney.
The CIO of Australian Super, the $100 billion bellwether fund, told the ASFA conference that when his fund started along the insourcing journey in 2012, international comparisons indicated that at about $30 billion in assets most funds would have 40 per cent managed internally. By $50 billion in assets, half would be managed internally. By the time a fund was $80 billion, almost all its assets would be managed internally.
As it is now, Aussie Super has about 20 per cent managed internally, but Delaney said that the fund could probably not have pushed its insourcing program any faster. Of course, the fund is growing much faster than most of its international peers, too.
So, four years ago, the fund’s trustees and management could predict that it would be about $100 billion by 2016 and embarked on a program to have one-third of it internally managed by then. This would shave off a healthy 10bps from an estimated average of 45bps. The estimated total of external management fees at $100 billion in assets was around $500 million per year.
“I don’t think we could have done it any faster,” Delaney said, outlining all the considerations AustralianSuper deliberated upon prior to implementation, including possible cultural issues and whether the trustees or executive had the discipline to terminate internal managers for underperformance.
Australia’s super funds grew so quickly through the 2000s that they did not have the time to adapt to their size, he said. “Australian funds are the exception to the norm.”
AussieSuper is currently implementing an internal fixed income capability, having already done Australian equities – both large and small, direct property and infrastructure, active global equities, credit and loans, and currency (which Delaney described as a “sleeper” in most portfolios because of its potential impact).
“You know, when I started at STA (Superannuation Trust of Australia which merged with the Australian Retirement Fund in 2006 to form Australian Super), we had an investment team of two. Now we have 180,” he said.
He said that investment people were often very good technically but had to be taught about leadership.
“When you hire senior people you find that they want to have control over what they do. They don’t like being looked over their shoulders. You have to empower them,” he said. “And as a fund becomes larger, senior people expect it to deliver more for them.”
But delivering more for them was not just about remuneration. For instance, many good investors did not like to have to get involved in sales and marketing. At a not-for-profit fund, they did not have to perform those functions.
“Super funds [investment teams] don’t have to sell. Most fund managers spend half their time selling and they hate it. Often they are introverts… We are in the business of making money for people, not off people.”
