Sydney-based First State Super is to expand its active asset allocation programme under a strategic plan this year to bring more investment functions in-house and offer more electronic services to its 755,000 members.

As part of these moves, the A$52 billion ($39 billion) pension fund has appointed State Street as its custody and administration services provider to replace JP Morgan.

FSS chief executive Michael Dwyer told AsianInvestor: “The programme is to selectively in-source investment management where it makes sense for us to do so. There will always be a role for external investment managers in the portfolio.”

The fund implements its active asset allocation positions using exchange-traded funds for Australian equities, Australian bonds and US equities, which Dwyer marked out as its three biggest risks. Over the next few years FSS will manage more cash in-house and expand its active asset allocation programme into other markets, including in Asia, he noted.

“We are also putting the operational infrastructure in place to trade other instruments, which will enable us to better manage the asset allocation at a more granular level in the portfolio,” added Dwyer. “This will include currency forwards, other OTC [over-the-counter] instruments, equities and bonds.” He did not elaborate on the operational infrastructure in more detail.

Fund managers used currently include AMP Capital, Baillie Gifford, Colonial First State, Hyperion, Lazard, QIC, Resolution Capital, Schroders, State Street Global Advisors, UBS, Vanguard and Wellington. 

Meanwhile, State Street will now provide master custody, investment administration, custody ancillary services and middle-office services for the FSS investment portfolio. The firm won the mandate, said Dwyer, because of its superior technology supporting all services and for its well established global middle-office capability.

The previous service provider, JP Morgan Securities Services, will continue to provide important services to the fund, he noted. “From time to time FSS will look to use the investment bank and other market-related services.”

State Street’s head of global services for Australia, Chris Taylor, said FSS was seeking to be closer to markets and have greater control over investment decisions, hence the desire to internalise more of the investment management function.