AustralianSuper has hired Stephen Joske from the Economist Intelligence Unit in Beijing to offer an overview of Asia macroeconomic trends and help interpret them into portfolio strategy.
This is a landmark move for the A$42 billion fund as Joske is its first investment professional in Asia. He is due to start as senior manager for Asia tomorrow and will report to CIO Mark Delaney, who confirms this is the first of several positions the fund plans to create in the region.
Asked what AustralianSuper’s plans are with regard to building a presence in Beijing, Delaney says it is weighing up its options but suggests a representative office is the most likely outcome.
Whether Joske will be supported by additional analysts is still to be decided, although Delaney states that a key requirement of the role was that the chosen candidate be autonomous.
“The real debate has always been whether you locate the role in Beijing, Hong Kong, Singapore or Shanghai, and each has its pros and cons,” notes Delaney. “Hong Kong is a bigger investment centre and for a foreign investor it is easier to manage capital flows via Hong Kong than Beijing.
“But given that this is more of a macro role than one that is day-to-day moving investment capital around, foreign exchange restrictions are not as prevalent an issue.”
Delaney confirms that over the medium term AustralianSuper is looking to base a number of investment professionals in Asia, given that until Joske’s arrival all of its investment staff of 35 were based in Melbourne. It has three front-office teams, one each for equities, fixed interest and macro and portfolio control (risk and control budgeting).
“We have deliberately avoided making a decision on where investment professionals might be based,” he adds. “The first issue was to identify what role we wanted to start with, get the right person and determine the right location. We think Beijing is the most sensible place for [Joske] to do this role. This is the first of the positions we will be appointing in the region.”
He says that Joske’s most appealing credentials were that he was a Mandarin speaker who had worked in both the private sector with EIU and the public sector with the Australian embassy in Beijing as senior Australian Treasury representative to China, among other roles.
“It became apparent [during recruitment] that if we had hired someone with investment experience, they might be good at Asian stocks or other asset classes, but realistically we would not get someone who could cover all potential investment opportunities,” says Delaney. “So we thought it would be much better to go broader and then supplement it with specialist expertise.”
As such Joske will form part of AustralianSuper’s macro committee that determines asset allocation and broader sector-tilt strategies. The team comprises Delaney, Joske, several investment managers and portfolio control.
“Clearly what happens in China’s economy will be a key driver for how you view Australian equities and the relative attractiveness of emerging markets versus developed markets,” adds Delaney. “[Joske] will develop that view in conjunction with the macro investment team.”
AustralianSuper has a A$24 billion equities portfolio, comprising two-thirds domestic and one-third international. Within the international portion, emerging markets make up about 45%, and Delaney has previously told AsianInvestor he wants to raise EM exposure to 50% and above.
He notes that emerging market equities appear relatively attractive now, although the fund has not made any decision to increase the percentage of its EM exposure as yet.
“We are hopeful that emerging markets will continue to have a better year as the significant tightening in monetary policy and slowdown in economies that occurred in 2011 is gradually reversed,” says Delaney. “Some of the markets are at more attractive pricing than a year ago.”
Last August AustralianSuper revealed it had hired Innes McKeand from Aegon Asset Management in the UK to fill a newly created position as head of equities. As such, it raised expectations that it would look to in-source more investment expertise.
The fund outsources 98% of its portfolio to external management at present, although as Delaney points out it is the largest shareholder in two big fund management vehicles: Industry Funds Management and Industry Superannuation Property Trust.
“We are looking this year at whether there are advantages of doing internal management on the rest of the portfolio and we hope to have conclusions before the end of this year,” says Delaney.
AustralianSuper is a beneficiary of the government’s policy of enforcing workers in Australia to put 9% of their gross wages into superannuation. However, with employee contribution set to rise to 12% by 2020, pension funds are expected to raise allocations to international equities.
Consultancy Casey Quirk recently forecast that more than A$120 billion would flow into these securities in the next decade, while some A$60 billion would be withdrawn from local equity investments, potentially leaving domestically focused fund managers out in the cold.
AustralianSuper has $42 billion in assets under management among its 1.8 million members and anticipates that this will rise to around $75 billion by 2020, boosted by additional contributions.
Other than equities, it has A$10 billion invested in infrastructure and property, A$4 billion in fixed interest, A$2 billion in cash and A$1.5 billion in private equity.
Joske was previously director of the China forecasting unit for the EIU, where he managed economists and econometricians to provide advice on factors driving structural change in the Chinese economy.
He has also worked at the Australian embassy in Beijing; as senior analyst covering the Chinese economy for the Australian Office of National Assessments; and as senior adviser on macroeconomic and budget policy to the Treasurer.