ART’s Andrew Fisher reflects on the impact of size on the investment strategy and how the fund will continue to evolve as it nears the half a trillion mark
The merger of SunSuper and QSuper into the Australian Retirement Trust (ART) in 2022 created a $260 billion fund, making it instantly one of the largest funds in Australia and a serious global player.
In this month’s [i3] Podcast interview with Andrew Fisher, Head of Investment Strategy at ART, we spoke about the implications of the rapid growth for the strategy of the fund and discussed how it will need to adjust its investment approach as ART gets closer to the half a trillion mark.
Fisher said that SunSuper had already been planning for the day it would manage hundreds of millions of assets, but also acknowledged that the pace of growth continued to surprise the team.
“In both cases, [SunSuper and QSuper were] on a pathway of doubling. We’ve always sort of said [we will double] every seven years, but the reality is it’s closer to every five years.
“We consistently get surprised by growth to the upside.
“What the merger essentially did is bring forward a five-year plan into a day. But it wasn’t necessarily growth that wasn’t expected; it was just growth that came much, much, much, much faster than we would have otherwise anticipated,” he said.
What the merger essentially did is bring forward a five-year plan into a day. But it wasn't necessarily growth that wasn't expected; it was just growth that came much, much, much, much faster than we would have otherwise anticipated
Although SunSuper had been planning for expansion in advance, the two funds had quite different investment strategies with QSuper pursuing a risk balanced, peer unaware strategy, while SunSuper had a more traditional balanced fund, peer aware approach. As a result, there were quite a few areas where the funds had different capabilities.
Fisher takes the view that this in many ways meant the two funds were quite complementary, resulting in relatively little overlap.
For example, QSuper brought a highly experienced capital markets team to the fund, while it also had greater expertise in infrastructure investments.
SunSuper, on the other hand, has had a long history of successfully investing in public markets.
These differences meant the fund had a couple of areas where it needed to catch up on the rapid growth, including its capital markets and exposure management capabilities.
“There are probably areas in our capability where we’ve outgrown our capability,” Fisher said. “And so we had to, relatively quickly, try and catch up and make sure we have all the capability we need to run a $200 to 300 billion fund.
“And I think we’ve done a really good job of that over the last 12 months,” he said.
Future Growth
The next phase will now be about preparing for what the fund might look like at $500 billion or even $1 trillion in assets under management, since ART continues to experience rapid growth.
“What we’ve probably in both cases always tried to do is thinking about really simplifying down,” he said.
“As you get bigger and bigger and bigger – and we know we’re going to get bigger – what are the things you can do consistently, sustainably to generate relative outperformance and things that you’re not going to outgrow?
“Our approach will inherently evolve as our scale changes, but we’re never going to outgrow the private markets and our ability to deliver an illiquidity risk premium over time,” he said.
Fisher has previously stated that private assets provided an important source of resilience during the 2021-22 period, when the correlation between equities and bonds turned positive. But investments in private assets were not without its challenges, particularly in retail and office real estate.
In fact, ART found that alternative real estate provided the best protection during this time.
Another area that Fisher continues to expect to do well as the fund grows is dynamic asset allocation.
“We think we can consistently add value in the dynamic asset allocation space, and then very specifically in that space thinking about it from a valuation approach,” he said.
We're going to have to evolve how we think about what our market footprint looks like. You don't want to be doing so much in that space that you actually dominate the market
“You’re buying when everyone else is selling and you’re selling when everyone else is buying. And so being able to provide the liquidity to the market in the public market space is something we don’t think we’re ever going to necessarily outgrow.
“Again, we’re going to have to evolve how we think about what our market footprint looks like. You don’t want to be doing so much in that space that you actually dominate the market,” he said.
Finally, implementation will always be an area that can be fine-tuned, because as the fund grows bigger even small savings can result in big numbers.
“Every single basis point, every bit of leakage saved and every bit of additional juice that you can extract from your balance sheet and your portfolio is worth a lot more in terms of dollars,” Fisher said.
Not All Mergers Are Like QSuper
QSuper hasn’t been the only merger ART has been involved with in recent years. Other recent merger partners have included Australia Post Superannuation Scheme, Commonwealth Bank Group Super, Alcoa Super and a deal with managing funds for Woolworths.
A merger with AVSuper is scheduled for May 2024.
But none of these mergers have come close to the impact the amalgamation with QSuper has had on the fund.
“The QSuper merger is probably uniquely different to all of those, because you could go back in time and there’s a pretty strong heritage of corporate superannuation on the SunSuper side,” he said.
“We’ve had quite a number of mergers of a similar scale to the ones you’ve described there, [but] I think QSuper is a completely different piece. We have two funds of sort of equivalent scale coming together. I mean, it is really a genuine true sort of merger type scenario; we’ve merged everything.
“When is the merger finished? To some extent, it’s finished the day it happens. And to another extent, it’s never really finished,” he said.
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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.