On a risk-adjusted basis, legalsuper has come out on top with a return of more than 12 per cent for its Balanced fund option for the year. We speak with interim CIO Andrew Lill about the drivers behind the stellar performance
Legalsuper has come out as the top-performing fund in the Chant West Growth category this year with a return of 12.6 per cent. It is an impressive result considering the median fund in this category produced a return of 10.5 per cent, more than two per cent lower than legalsuper.
Andrew Lill joined the fund in March 2025 as interim Chief Financial Officer (CIO), and only a few months into the role, he is modest about his contribution to the result.
“The foundations for this year have been built over the last few years. And so I’m not trying to take credit for the work that’s been done by the Chief Executive Officer (CEO), the Investment Committee members and my investment team, but it’s great to be able to present a 12.6 per cent return to members,” he says in an interview with [i3] Insights.
But Lill does have a good insight into what has driven the performance of the fund and he points out that it wasn’t a large overweight to US tech stocks or Commonwealth Bank.
“The portfolio is set up for diversification across listed and unlisted assets. So the first thing to say is we haven’t had a material overweight to global equities,” he says.
The portfolio is set up for diversification across listed and unlisted assets. So the first thing to say is we haven't had a material overweight to global equities
“[But] within the sub-sectors, we have made some calls that have worked out particularly well this year. One in particular was a global mid-cap, growth mandate, with a particular focus on mid-cap technology stocks, which in this environment did very well and delivered lots of great alpha.”
“Then within infrastructure, both unlisted and listed exposures performed really well in this 12-month period,” he says.
Legalsuper has a 25 per cent allocation to listed infrastructure in its overall infrastructure portfolio. This listed allocation stems from the fact that the fund has partnered with fund managers to build exposures in Australia and Europe, but doesn’t as of yet have material exposure to US infrastructure assets.
It, therefore, took a listed exposure to global infrastructure to ensure it wasn’t underweight in the US sector and that played out well this year.
Legalsuper also benefited from a bias towards Australia and Asia in its private equity portfolio, which is largely a result of the particular managers it has chosen.
“There is US exposure, but it’s smaller than probably peer funds have. And with all the uncertainty in the US throughout this year, it meant that private equity activity was a bit down in the US, whereas it seemed that in Australia and Asia the prospect of central banks starting to cut rates meant that those exposures delivered some really great returns,” he says.
Lill also pointed out that where many of its peers have passive exposures to sovereign fixed income, legalsuper has maintained active allocations to this asset class and this has paid off too this year.
“A lot of funds have decided that sovereign fixed income is an area where there’s a very low return for risk, and in a Your Future, Your Super world, it’s not worth taking active management risk in sovereign fixed income,” he says.
“But actually through March and April, with all the geopolitical uncertainty and policy change that was being experienced then, our active managers in global fixed income delivered above-trend alpha.”
To Hedge or Not to Hedge
Rating agency Chant West has shown that a fund’s hedging position towards international equities could have made a significant difference this year, as the Australian dollar weakened over the reporting period.
A hedged exposure to a passive allocation of international equities would have returned 13.7 per cent, but leaving the portfolio unhedged would have resulted in an 18.6 per cent return.
But Lill indicates that legalsuper’s hedging policy is broadly in line with its peers, who on average hedge 30 per cent of the portfolio and leave 70 per cent unhedged.
Our members didn't move en masse to lower risk options, which would have required us to move our asset allocations and change our asset allocation positions
He did point out that the fund managed to keep its hedging policy in place during the volatile months of March and April, when the US introduced steep tariffs on a broad range of countries.
“As the Australian dollar was falling, there was a need for liquidity. Our positive net cash flow in the fund meant that we were able to roll those hedging contracts at really important times,” he says.
The fund’s cash flow position was helped by the fact that members stayed in their chosen options and didn’t switch to more conservative options during the height of the volatility in March and April of this year.
“Our members didn’t move en masse to lower risk options, which would have required us to move our asset allocations and change our calibrated portfolio settings,” he says.
Building an Enhanced Passive Core
Funds that had larger allocations to passive mandates also seemed to do better over the year, as the performance of individual stocks varied widely during the reporting period and company fundamentals were no guide to picking winners and losers.
Legalsuper has a core of passive and enhanced passive factor mandates in both Australian and international equities. In global equities, the fund has 30 – 40 per cent passive and enhanced passive, while in Australia the passive component makes up half of the overall equity allocation.
“We try to chose a relatively benchmark unaware, high active risk, high conviction exposure, akin to a core/satellite-type of approach, as opposed to an active across the board approach,” Lill says.
We chose a benchmark aware, high active risk, high conviction exposure, so it's almost a core/satellite-type of approach, as opposed to an active across the board approach
“So we have constructed a total portfolio of well-considered, high conviction mandates in certain areas of comparative advantage, supplemented with a core of passive or preferably enhanced passive, quantitative factor-based strategies.”
At $7 billion, legalsuper is among the smaller super funds in the industry. Lill did not want to be drawn on the question whether the stellar results over the 2025 financial year vindicate the role that smaller funds can play in the industry.
“CEO Luke Symons and the executive team are really focused on delivering great financial outcomes and high quality member services to our cohorts of members, which we’ve clearly delivered on this year. That is what’s most important at the moment. We have no plans to internalise investment management; we are focused on organic member growth, and so as an executive we have great clarity of mission,” he says.
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[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.