Peter Curtis was appointed to AustralianSuper’s inaugural Chief Operating Officer role in April. We speak with Curtis about his additional responsibilities, the fund’s stellar growth and look back on his career of more than 16 years with AustralianSuper.
When Peter Curtis took on the newly created role of Chief Operating Officer at AustralianSuper in April, it wasn’t just a personal milestone. The creation of the role was the result of an amalgamation of various fund activities that encompasses the nuts and bolts of the entire member experience, from accumulation to wealth creation and, ultimately, retirement.
The role spans finance, legal, technology services, investment and member operations, data services, continuous improvement, compliance and operational risk.
“What I’m finding particularly exciting is that we’ve now got the whole process of where a member gives us a dollar, it gets invested and then we pay the member an income when they’re in the retirement phase, all under one group,” Curtis says in an interview with [i3] Insights.
What I'm finding particularly exciting is that we've now got the whole process of where a member gives us a dollar, it gets invested and then we pay the member an income when they're in the retirement phase, all under one group
“So that dollar flows all the way through now, whereas previously the member activities were over here, the investment activities over there, and so bringing it together, with the technology function as well, will allow us to really exploit our scale.”
Curtis joined AustralianSuper in 2006 from National Custodian Services, part of NAB, where he was Head of Product Development. AustralianSuper was a very different beast then, still relying on external service providers for almost all of its activities and a fraction of its current size.
“I joined the fund when it was around $20 billion; I think I was number five in the investment department. Most things were outsourced and everybody fitted onto one floor,” Curtis remembers.
“So looking back, it’s really been that growth for me [that stood out] and I remember [AustralianSuper Chief Investment Officer] Mark Delaney saying to me: ‘You know, we’re going to double the assets every five years,’ and I sort of thought: ‘Yeah, sure,’ but it has pretty much worked out like that.”
Internalisation in AustralianSuper
Curtis is most comfortable when he has the opportunity to take on a project and build up a new capability or service for the fund. In his 16 years with the fund, he has had plenty of opportunity to do just that, but one project has stood out above most: the decision to bring asset management in-house.
As AustralianSuper grew, management realised things had to change. Studies by CEM Benchmarking clearly showed that as a pension fund grew beyond a certain size, it was left with two choices: abandoning active management in favour of passive investments or building up its own internal investment capability.
Curtis admits the prospect of starting such an ambitious project was somewhat daunting.
“We had no systems, we had no people and we had no processes, so we were really able to start with that proverbial blank piece of paper, which can actually be quite terrifying,” he says.
“But it really allowed us to work out how we wanted to do it, who we wanted to partner with and what we wanted to do internally, which was all about the investment decision-making [process]. So we partnered with our custodian, J.P. Morgan, to help us build middle-office capabilities. We found IT providers to give us the platforms we needed and we wrote our policies.
We had no systems, we had no people and we had no processes, so we were really able to start with that proverbial blank piece of paper, which can actually be quite terrifying
“It is one of those things where you’ve got a picture in your head of where you want to get to and then it’s just breaking it down into smaller chunks.”
He feels AustralianSuper got most things right in the process, but there are always some lessons to be learned along the way.
“The first systems and platforms we put in, we replaced probably four or five years later, because we realised they weren’t the ones that were going to be scalable,” he says.
In their place, the fund has implemented BlackRock’s Aladdin platform, which proved not only much more scalable, but also set the fund up well to deal with the coronavirus pandemic and the subsequent lockdowns that were about to happen.
“It was a couple of years after that we hit the COVID crisis and it was incredibly comforting to know that we were on a platform that was just going to allow us to do what we needed to do as we moved everybody to working remotely, both here in Australia and offshore,” Curtis says.
At the time AustralianSuper decided to move to a hybrid model and bring asset management activities in-house while maintaining relationships with a select number of external investment managers, the fund realised this also required a different investment delegation framework.
Whereas in the early days of the fund’s existence most investment decisions were made by the investment committee, an in-house model required a more nimble approach to ensure the fund could make full use of its presence in the market.
“Under the old model the really big decisions were made by the investment committee and since then more has been delegated down to the Chief Investment Officer and then from him down to his direct reports and then also down to the various managers,” Curtis says.
“As we’ve grown, we’ve always looked at what we needed to do to change our model so that we can still operate effectively. If you don’t change what you’re doing, then you will get diseconomies of scale. But looking offshore at some of the other really large funds, we’ve still got a significant runway in front of us.”
When embarking on the internalisation quest, the investment team engaged with a number of peers, particularly in Canada and the Netherlands, to see how they had built internal investment capabilities and learn from their experience.
Although these funds tended to be predominantly defined benefit funds, they still had plenty of knowledge to offer about managing assets at scale.
We spent a fair bit of time talking to people that had gone before us because I certainly took the view that I didn't have enough time to learn all the mistakes myself
“We spent a fair bit of time talking to people that had gone before us because I certainly took the view that I didn’t have enough time to learn all the mistakes myself,” Curtis says.
“And that is another thing I love about this industry: just the willingness of like-minded organisations to share their experiences, because we don’t compete. So we took a lot of the learnings from them. For example, they helped us with who you might think about as different providers.”
When assessing the benefits of internalisation, the focus is often on the cost savings that can be achieved by cutting down on investment management fees and the ability to scale investment mandates up, and this has been a key feature of AustralianSuper’s experience too.
The fund estimates that last year alone the fund was able to save $300 million in costs compared to running a fully external model. The internalisation has delivered more than $1 billion over the past eight years.
But Curtis has also seen benefits that weren’t necessarily front of mind when embarking on this exercise. As an active participant in listed markets, the fund gets to see deals that it previously didn’t, while it is also able to get multiple asset class teams involved at various stages during a transaction.
“We were doing a big transaction in Queensland toll roads in conjunction with Transurban and that allowed our unlisted team to work with our listed team and with Transurban to basically underwrite their retail share offering,” he says.
“This was a good outcome for them and a good outcome for our members. It just suddenly brought to life the synergy benefits of being close to the market and bringing the whole capital allocation ability altogether.”
Capacity constraints were another clear driver of the decision to bring asset management in-house. This is particularly relevant to the fund’s Australian equity portfolio, where the addition of yet another manager would have resulted in returns that would increasingly match the benchmark.
Under its current Australian equity strategy, AustralianSuper manages a relatively concentrated portfolio of large caps with the intent to simply buy and hold for the very long term. The fund sees itself increasingly as a partner of these companies, rather than simply an investor.
“We couldn’t have been running an external manager model in Australian equities at our size,” Curtis says.
“What we now have is a very large Australian equity portfolio that has given us the ability to sit down with the chair and management of most of the large companies in Australia to talk to them about issues and have influence.
“We’ve also partnered with a number of mid-sized companies on their capital raisings, which reduces their costs because we’re happy to support them in what they’re doing.
“A lot of these things we hadn’t really thought about when we did that first step and started to bring some of those functions in-house.”
During Curtis’s time with the fund, AustralianSuper has grown from $20 billion to more than $263 billion as at 30 September 2022. Under the 2030 strategy, the fund is estimated to grow to $1 trillion within a decade.
This expansion will be partly driven by organic growth, but with the regulator actively promoting further consolidation in the industry, additional mergers are likely to take place in the future too. Asked whether fund mergers have become easier from an operational perspective, Curtis answers resoundingly “yes”.
He has been part of 16 mergers during his time with the fund and remembers that only eight to 10 years ago, these still involved a lot of physical documents to go through and sign.
“We had a room with this huge table that all the documents came into. For example, some documents dealt with transferring the private equity funds across to us,” he says.
“But now it’s all just coming through electronically, so just seeing those technological changes has been quite interesting.”
Yet, the underlying process of a merger is largely similar with each transaction, he says.
“It is about understanding what the members are invested in, understanding how our investment options are mapped to their investment options, how our insurance compares to their insurance, all those things are pretty much the same,” he says.
Having done so many mergers, he feels AustralianSuper has fine-tuned the process to such an extent that the size of the merger partners is not a consideration anymore.
“We’re incredibly fortunate that we have high-quality providers with Link and JP Morgan, who’ve also put in place teams to help us do those moves,” he says.
“And because of our size we’re able to pull people from across the business together to run a dedicated project team that just focuses on the merger, so that it doesn’t get in the way of our business-as-usual activities.
“We have our internal dealing and asset allocation capabilities that allows us to work out what we want to keep, what we want to sell and just bring that together in a very seamless way, which ensures the incoming members are not out of the market at any point in time.”
When Curtis assumed the role of Chief Operating Officer in April, he took on the additional responsibilities for technology services. A key part of technology services is cybersecurity, an issue that has risen to the top of many company agendas following the data breaches at Optus and Medibank by Russian hackers.
Curtis says cybersecurity has been of key importance to the fund for some time, which is reflected in the decision by AustralianSuper’s board to keep this as part of the board’s portfolio of responsibilities.
“Our board held on to cybersecurity risk as a risk that they oversee, which I think really sets out the importance that they see in that function. It hasn’t been delegated to a board sub-committee,” he says.
[Cybersecurity is] also something that we continue to talk about with our staff because we want everybody to think about what comes into their inbox. What are they clicking on? Do they ensure their passwords are safe, both the ones they use for work and personally? It is something that we constantly focus on
But good cybersecurity practice is a continuous process, he says. Currently, AustralianSuper is in the process of transferring its tools and data to the cloud, which ensures additional layers of security.
“We are continuing to upgrade our capabilities in that area. We’re getting very close to finishing our transition to the cloud and that will mean all our endpoints are being monitored on a much more frequent basis,” Curtis says.
“We’re continuing to look at what member data we are holding within the fund and we’ve been involved in a few working groups across the industry that have been looking at the recent incidents.
“But it’s also something that we continue to talk about with our staff because we want everybody to think about what comes into their inbox. What are they clicking on? Do they ensure their passwords are safe, both the ones they use for work and personally? It is something that we constantly focus on.”
To read about the recent overhaul of AustralianSuper’s investment team, please click here.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.