Home / State Super’s top-down approach to building investment team

State Super of NSW, Australia’s largest defined benefit fund, has secured its CIO, Mark O’Brien, as a key part of its reconstruction under a new board and management. Four other investment professionals are currently being sought.

State Super (SAS Trustee Corporation) is a $A36 billion closed fund overseen by the NSW Government for some of the State’s current and former public servants.

Despite its size, the fund has been run on what could be regarded as a skeleton staff, compared with its peers, for many years, until John Livanas took over as CEO in 2011 with a mandate to build the team. He was previously the CEO of the AMIST meat industry fund and before that the general manager of FuturePlus.

“We are effectively building the organization from scratch,” Livanas said, after announcing the hiring of Mark O’Brien, last week. “We decided we needed to build it from the top down, which is why we took some time to hire our new CIO.”

But O’Brien is no ordinary poaching. He was lured away from his new life in farming, which he had pursued after a successful 18-year career at AMP Capital. And it was no hobby farm either. O’Brien resigned his position as CIO of AMP at the end of 2010 to graze cattle and sheep on about 5,000 acres on two properties in south west NSW.  Apart from some wool classing during his university breaks 30 years ago, he was putting his university studies in agricultural science to work for the first time.

O’Brien said: “With some smart people now in place to help run the farms, I am keenly interested in the unique investment challenge and opportunity to build on what we have at State Super.”

Livanas said the two things he was looking for in a new CIO were experience and skills on the one hand, and values and cultural fit on the other.

“All the hires I’ve done over the first year are people who have done similar jobs before. I haven’t appointed anyone for whom it’s been a big step up.

“We started off with just a handful of people, really. We’re in the process of hiring more staff. We’re hiring four more investment people. We’re in the final stages of interviews.”

He praised the role of Lisbeth Rasmussen, deputy CIO, who has been acting as CIO for the past several months: “She’s done a fantastic job with a small team.”

The chair of State Super and chair of the investment committee, Michael Carapiet, who replaced former fund chair Don Russell, who became secretary of the Department of Industry, Innovation, Science, Research and Tertiary Education in June 2011, said the fund was delighted that O’Brien had joined due to his experience and leadership skills.

Unlike most defined benefit funds in Europe or the US, State Super maintains a growth strategy in its asset allocation and is therefore not as sensitive to interest rate movements as other similarly structured funds. Nevertheless, it is closed to new members and has a lot of pensioners on its books, so it has to fund millions of dollars in outgoings each year, with the bulk of the cashflow coming from investment returns.

Livanas says that this is his biggest challenge. In an accumulation (defined contribution) scheme you can take more risk, especially in Australia, which has mandated minimum contributions. State Super’s target annual return is inflation plus 4.5 per cent after tax.

With extra staff, State Super would be continuing its hands-on activities in alternatives and taking a more “deliberate” approach with managers, he said, using more risk tools, for example.

“We are able to put together our portfolios in a more scientific manner.”

He has no intention of insourcing a major asset class such as Australian equities, “but we need to have a level of skill and resources to understand it”.