AustralianSuper Pty, the country’s largest pension fund, is considering hiring its own team to invest in global equities and credit securities as it works toward directly managing 30 percent of its assets by 2018.
The fund, which holds A$75 billion ($68 billion) in retirement savings for 2 million members, is discussing where to locate the global equities team having already begun internal management of A$1 billion in Australian shares, Chief Executive Ian Silk said in a March 14 interview in Sydney.
AustralianSuper, which like its peers had previously paid external managers to invest nearly all its assets, wants to cut management costs by A$150 million a year within 4 years. The fund already has teams to manage infrastructure and property assets while its global stocks portfolio is with external managers.
“We’re not sure we can recruit a good global equities team and have them based in Melbourne, that’s principally the issue,” Silk said. “If we can’t, are we prepared to go offshore with all the attendant issues?”
The fund has been investing offshore since 1986 and in 2013 for the first time it had more equity investment globally than in Australia, he said.
AustralianSuper, which deploys its assets through external managers, had been unable to reduce the cost of asset management below 60 basis points for its balanced portfolio, pushing the pension fund to look at bringing the process inhouse, Silk said. It had A$47 billion in the balanced portfolio as at June 2013, according to its annual report.
“We are now looking at asset classes to bring inhouse and one of the asset classes is global equities,” Silk said. “It’s difficult to find organizations and individuals that have got stellar track records and who’ll take a large amount of money. Even if they have the capacity to take $5 billion, they won’t want to take it from one institution.”
The not-for-profit pension’s largest global equities managers were Baillie Gifford Overseas Ltd., Genesis Asset Managers LLP. and Harding Loevner LP., according to the report for the 12 months ended June 2013.
The fund has hired seven people for its Australian equities investment team, Silk said. They began investing in October, according to a statement on its website. It also hired investment managers for its Australian property and infrastructure assets and in April was part of a consortium that paid the New South Wales government A$5.07 billion for 99-year leases at the state’s Port Botany and Port Kembla.
AustralianSuper wants to increase its investment in infrastructure though is hampered by a shortage of assets, he said. It has about A$7 billion invested in domestic and international infrastructure and the fund would like to allocate as much as 7 percentage points more of its total assets to infrastructure and unlisted property, he said.
“Most large pension funds, most large sovereign funds want to increase their exposure to infrastructure,” Silk said. “A danger here, when you have a whole lot of institutions chasing this scarce supply of assets, is to bid prices up. The best way to turn a good asset into a bad asset is by paying too much.”
The fund is bidding in a consortium with Transurban Group for Australian toll-road operator Queensland Motorways Ltd., Silk said.
The fund manager has a “stronger appetite” for existing infrastructure rather than new projects because of the lower risk, he said.
“There have been enough horror stories in greenfield infrastructure to make us wary,” Silk said. “Not so wary for us to say that we’ll never invest in greenfield but sufficient of those instances to say existing infrastructure is our preference.”
Australia faces an infrastructure funding gap of about A$300 billion, according to a June government report. Capital is needed for projects to help prepare for an expected 50 percent surge in population by 2050 and rising demand from Asia for the nation’s exports, according to the government’s Infrastructure Australia unit.
The country, which is hosting Group 0f 20 meetings this year, is trumpeting its plan to sell state-owned infrastructure to help fund new projects.
“We’d love to invest more in infrastructure,” Silk said. “There aren’t the opportunities around.”
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