AustralianSuper looks to boost EM manager line-up

The superannuation fund is keen to increase exposure to emerging market equities, having just hired an in-house head of equities for the first time. CIO Mark Delaney talks strategy.
AustralianSuper looks to boost EM manager line-up

AustralianSuper is looking to bolster its line-up of emerging markets managers and boost its exposure to the segment, having this week named an in-house head of equities for the first time. It is also searching for an Asian investment strategist.

The A$42 billion ($44 billion) pension fund has a A$24 billion equities portfolio, comprising roughly two-thirds Australian and one-third international equities. Within the international portion, emerging markets make up about 40%, or A$4 billion.

Mark Delaney, AustralianSuper’s CIO, tells AsianInvestor: “What we are looking to do is to build our exposure in emerging markets equities over time, from 40% to 50% and beyond.

“We do not have an RFP to put out at the moment, but given our aspirations to grow our emerging markets portfolio it is likely we will have to add to our emerging market manager line-up. We are starting to get together a long list of potential candidates.”

He adds that emerging markets fixed income is an area of interest for the firm that it is still weighing up whether to enter in the medium term.

This week the pension fund announced it had hired Innes McKeand from Aegon Asset Management in the UK to fill a newly created position as head of equities.

Asked if this was a sign that the fund would look to bring more investment expertise in-house – the fund outsources about 98% of its portfolio to external management at present – Delaney’s reply indicates this is an ongoing debate within the firm.

“We felt it would be impossible to decide whether that was a good idea without having someone onboard with experience in managing an in-house investments team,” he says. “But we have not necessarily decided to do so yet.”

He acknowledges a general trend among pension funds to in-source investment expertise as they grow. “We are conscious of that and we think that having greater in-house capabilities will give us more options to add value to the portfolio and probably allow us to do things a bit cheaper,” he adds. “I anticipate that there will be more activities done internally over time, but what they are and in what timescale we have yet to decide.”

AustralianSuper used a recruiting firm to find McKeand, who is emigrating with his family from Scotland and is due to start in Melbourne on September 12. The hiring process took around four months and featured a national and international search of pension funds and other institutions.

“Large institutions have often been down the path we are looking to go down, which is to broaden our implementation approach and gain experience in a broader range of activities,” says Delaney.

“We found that some of the people from overseas had experience along the lines we were looking for at building equity portfolios and equity capabilities.

“[McKeand] has displayed careful judgment and has a strong overview of different techniques of doing things. He has also operated in a pension plan before, so he has a good idea of what the job involves.”

McKeand had been head of equities at Aegon Asset Management, based in Edinburgh. Prior to that he worked as CIO at AIB Investment Managers as well as head of investments at Nestlé UK pension trust. He also spent 14 years as CIO of ScottishLife Assurance Company.

At present AustralianSuper has over 30 investment professionals, which include middle and back-office staff within its multi-manager approach. It has three front-office teams, one each for equities, fixed interest and macro and portfolio control (risk and control budgeting).

In a further sign of its expanding horizons, Delaney confirms AustralianSuper is currently engaged in a search process for an Asian specialist in investment strategy.

Asked about the relative appeal of emerging market equities versus developed market equities, Delaney stresses that the fund has a very long-term investment horizon, given that the average age of its members is 40.

He acknowledges that developed market equities are cheap, but says there is a reason for that. “The US and Europe have substantial issues they are working through. On a historic basis US equities are cheap, but there is considerable doubt about where the economy is going.

“It is not clear that developed countries over the medium term are going to be able to work off their problems in a substantial way. Besides, given that earnings in emerging markets are twice the growth rate of developed markets, you would be surprised if equities were pricing at the same level.”

AustralianSuper’s present portfolio consists of A$24 billion in equities, A$10 billion in infrastructure and property, A$4 billion in fixed interest, A$2 billion in cash and A$1.5 billion in private equity. The fund has returned an average of 6.13% per year over 10 years to June 2011.

¬ Haymarket Media Limited. All rights reserved.