AustralianSuper has become one of the world’s largest public pension funds, and has grown its overseas footprint significantly in the past few months, including its London and New York offices, which it expects to grow to 250 staff. We had the great pleasure of speaking with Damian Moloney, Head of Investments, International, about the activities and prospects of the fund.
[GSWF] Australian superannuation schemes are often compared to Canadian and Dutch public pension funds. What do you think of those comparisons?
[AusSuper] The way we deploy capital may be similar but there are significant differences. The Australian system is unique because of the open competition between all schemes, and because most funds are Defined Contribution (“DC”). Also, the membership is relatively young when compared to other countries (c.42 years old on average, in our case), which generates significant growth and cash flow, and a longer investment horizon.
[GSWF] In the past decade, AustralianSuper has grown its assets from AU$ 47 billion to AU$ 260 billion, and it now plans to reach AUD 1 trillion within the next decade. How will you do that, and do those plans include a growth in members?
[AusSuper] We expect to increase our membership beyond the current number of 2.9 million, given we are the default plan in Australia. We have a target and ambition to grow: more than 440,000 members joined in the last year, and we are taking three steps that will help us grow organically: increasing the internalization of certain strategic areas within our portfolio, pursuing more investments overseas, and allocating more capital to private markets. We tend not to account for M&A in these numbers, as it is not our priority channel and acquisitions of plans are normally smaller. The focus remains on investing to deliver strong, sustainable long-term returns to members.
[GSWF] Your former firm, Frontier Advisors, said that “bigger is not necessarily better”, and that some funds have become “too big to be able to get enough exposure in niche markets”. Do you think you will be able to outperform despite your size?
[AusSuper] We are consistently #2 in league tables that consider 10 and 15-year investment returns, but there will always be volatility and some smaller funds may be able to outperform us in a given year. Size creates access to opportunities and partnerships but we choose to disregard certain areas because they are not relevant to us and that allows us to control our fees and choose our partners.
[GSWF] The balanced option allocates 21% to bonds, 55% to stocks and 25% to unlisted assets – is that similar to the SAA?
[AusSuper] That is the default option and represents 90% of the AU$ 260 bn we manage. Most Australian super funds allocate 70/30 or 80/20, and we expect to be reasonably consistent with that albeit we will increase the weight of private markets in the next few years.
[GSWF] The return of the balanced option in the first half of 2022 was -7.3%. Are you worried about ST pressure?
[AusSuper] Superannuation is a long-term investment. The Balanced Option returned -2.7% for FY22. Over five years it was 7.3% and over 10 years it was 9.3%. These numbers are shown on a net basis, after relevant taxes, which may not affect some of our global peers.
[GSWF] International investments make up to 50% of AustralianSuper’s portfolio – where are these investments located?
[AusSuper] We do not maintain a regional view, preferring a global perspective. As an Australian investor, we are naturally exposed to China, India and Asia more broadly, so we may look at other regions that are farther from us from time to time, like Latin America. We also had a small delegation going to Jakarta two weeks ago, and we may further explore if Indonesia might be of interest. In terms of offices, we aim to grow our New York and London to 100 and 150 staff respectively, and are still modestly growing our Beijing office.
[GSWF] You are a frequent co-investor with other Sovereign Investors. Do you have a preferred partner or situation?
[AusSuper] We do have a significant number of partners in our portfolio, but they are quite diverse. Alignment is very important to us: we like our partners to be long-term in focus, to have a track record of working with global investors, ideally, to have operating capabilities; and to have a common approach to ESG. A good example is the JV we recently established with British Land to develop Canada Water.
[GSWF] Lastly, how do you summarize the past four years and how do you compare them with your previous roles? What are your ambitions for the future?
[AusSuper] AustralianSuper is different to other organizations because of its growth in terms of assets and personnel. We can deploy significant capital into meaningful opportunities, enabled by a unique combination of values and expertise, so I feel fortunate to be involved what is a really a transformational journey. The most pleasing aspect of working for AustralianSuper is its complete commitment to helping members achieve their best financial position in retirement. In terms of future plans, I am a member of AustralianSuper, so I am looking forward to outperforming the market for some more years so that I can retire a bit earlier!
