Australian superannuation fund Cbus is planning a big push into infrastructure investment and global equities as part of its plan to insource more of its portfolio management.
The A$34 billion ($26 billion) investor has gained permission from its board to substantially expand its investment and operations teams in its Melbourne and Sydney offices. The fund, which manages retirement money for the construction industry, aims to recruit some of these professionals from overseas.
As part of a plan to increase assets to A$50 billion within the next five years, Cbus aims to have 20% of the fund’s assets managed in-house. At the moment, the in-house team runs less than 10% of the overall portfolio, noted Kristian Fok, executive manager of investment strategy.
The shift depends on being able to identify and win transactions, he told AsianInvestor. “It could very well be higher, depending on the market opportunities and whether we get the right people.”
Meanwhile, the fund aims to cut fund management and transaction costs by 10% over the five years, although Fok said the decision to internalise wasn’t driven by cost.
Areas of planned expansion
Of the current A$34 billion, 25% (A$8.5 billion) is in Australian listed equities, with around the same amount in international equities. Infrastructure assets account for 11% of the portfolio.
Fok said some exposures would be easier to scale up than others. For instance, when it comes to listed securities, the proportion of international assets is likely to grow faster than domestic exposure. Moreover, Cbus is planning to increase its infrastructure allocation but did not specify a target.
Domestic property may prove harder to expand, said Fok, “so we will have to look at other geographies”.
Likewise, private equity is less easily scalable, so that allocation is unlikely to grow, he added.
The fund already has a relatively large portion invested in private markets, accounting for around a quarter of the fund, and 35% if unlisted credit is included, said Fok. “We are unlikely to strategically increase that, but our challenge is to maintain that allocation as the fund grows.”
Meanwhile, Cbus is planning to increase its investment in liquid alternative strategies - such as hedge funds or other alternative strategies in a Ucits structure. "We don’t really have much of a role for them at the moment,” he noted.
Fok sees considerable advantages to more in-house management, not least greater flexibility to exploit opportunities across different asset classes.
For example, infrastructure typically contains an element of property, meaning Cbus could potentially combine its property expertise and its new infrastructure capabilities, once they are in place.
The fund is also looking at private credit opportunities, given that banks’ rising capital requirements put pressure on their ability to lend.
Interest from abroad
Fok said Cbus was attracting interest from overseas investment professionals in Europe and elsewhere as it looked to expand its internal capabilities.
The fund is increasing staffing in two main areas: investment and operations. The investment team is slated to grow from 14 to 29 and the back-office support team from 20 to 30 within the next five years.
Fok said the teams may expand further in the timescale depending on how successful they are in managing the portfolio. “As we build out a strategy and get it going, we’ll look at a follow-on strategy, so incrementally we may add a few more people as it grows,” he noted.
Cbus is also looking to build up its expertise in areas including environmental, social and governance (ESG), asset allocation and portfolio design.
The fund has begun the headcount expansion, having brought in some key initial hires. “Those people have already started a fair bit of work around research and modelling,” said Fok.
“For us, it’s not just about capability; it’s also about cultural fit. I suspect it’s probably that aspect that may make it a slower process,” he added. Interested candidates must be willing to move to Melbourne or Sydney, he pointed out.