Some members are excited for retirement, while others approach it with a “real sense of shame and fear”. Funds are going to have to figure out how to cater to both groups or risk failing them all.
If there’s one lesson for investors from the past five years, it’s that chopping and changing their strategy – even in the face of massive market turmoil – doesn’t always pay.
Statewide seeds bespoke Apostle fund
Apostle’s People and Planet fund was tailor-made for Statewide Super’s members – and has interesting implications for an industry trying to meet a new wave of demand for sustainable options.
Two years ago, many institutions were still outsourcing their socially responsible investing (SRI) to AMP Capital or Pendal. But the Boe Pahari controversy saw a wider rethink of how that allocation was being managed. Apostle Funds Management managing director Karyn West discussed a change with several institutions; Statewide Super, in particular, wanted to do “something purpose built for their members.”
“When they surveyed their members, the strong elements that came through were a zero carbon objective,” West said. “Many funds work to a tolerance and engagement perspective… (Statewide) members found that relatively confusing to open up a portfolio and find a similar types of companies that a normal portfolio would hold. There was a bit of confusion and I think they wanted to go a lot further than just that, and the industry and individuals have moved past that thought process.”
“I think Statewide’s members are a fairly good indicator of what the values out there are,” West said. “We use that as our good sample case – if that’s what’s important to those members, let’s build something that will pass most tests for other members and individuals.”
Apostle’s objective for the diversified fund was to have hard exclusions around a range of industries – coal, tobacco, animal cruelty (apparently of particular import to Statewide’s members), and pornography, among others – while also investing in positive impact by allocating to sustainable options with a multi-manager approach, including Artesian’s Female Leaders VC fund in the growth alternatives segment of the portfolio and the Bailie Gifford Positive Change fund in global equities. The fund only invests in sustainable and green bonds for the fixed-income segment of its defensive allocation.
“We’re making a really conscious effort to tilt towards the positive, not just have a negatively screened fund that per chance happens to line up with some sustainable development goals (SDGs),” said portfolio manager Fiona Manning, who joined Apostle from AMP Capital in 2021. “The sustainable development goals and positive impact are really the touchstone of this fund, driving how we allocate assets.”
“There’s funds out there that will map their holdings against the SDGs and say that they’re impactful, but the whole point of impactful investing is having targets and being held accountable to those measurable goals, rather than just feeling like you’re investing in good things. There’s a lot more intentionality around it.”
The existence of the fund as an outcropping of member demand might present an interesting conundrum for an industry that has lately settled on engagement as the way forward for ESG. It’s also a sign that innovation will continue apace at a time when funds are growing concerned about how ESG might impact tracking error in the zero-sum Your Future Your Super (YFYS) performance test, though Apostle’s paper portfolio model performance showed significant outperformance against both its target return objective (CPI + 3 per cent p.a) and the YFYS composite benchmark
“It does make (ESG) hard,” Manning said. “For different industries – when it comes to the fairly standard exclusion of tobacco in an Australian equity context, that’s not a huge drama – it’s not giving rise to great swathes of tracking error,” Manning said. “It’s more problematic when it comes to things like net-zero; everybody’s signing up to decarbonise their portfolios, but the YFYS benchmarks are carbon agnostic.”
“I imagine there are industry bodies liaising with government around this issue, because it does introduce basis risk, essentially – you’ve got policy further up the pecking order around net zero and the decarbonisation of the economy, but then benchmarks for investment performance which give no reference to that. That’s difficult to navigate in terms of managing tracking error, which is front of mind now with the performance benchmarks.
Statewide seeded the fund with $100 million, and West has been in discussions with other small and mid-sized super funds who have expressed interest in allocating to the strategy separate of their existing SRI options with a view to more cost-effective ways of accessing impact. West and Manning expect the heightened community awareness around climate change will lead to proliferation of new products in the space, and Apostle’s partner managers have also seen demand for “ethical and environmentally conscious products” soar.
“The other group that have expressed interest are charities, religious organisations that have really struggled to find an existing product that meets their values… And universities, because there’s been quite a bit of feedback from the students about having zero carbon and a higher quality values-based portfolio,” West said.
