Care Super hits the investment ‘sweet spot’

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The A$4 billion Care Super fund, which has won the Victorian Funds Management Corporation (VFMC) award for investment stewardship, had reached a ‘sweet spot’ in terms of its size which had helped it to outperform, according to its CEO.

“As a medium-sized fund, there are smaller managers (you can use), and we can make a difference by doing things that aren’t huge,” CEO Julie Lander said. “Whereas for a big fund, unless you can really place hundreds of millions of dollars, it’s not going to make a difference. So, in a way, we have got a bit of a ‘sweet spot’ and that has lead to our outperformance.”

The fund has outperformed on 10 year average returns, right through the global financial crisis.”That has been one of our flagship philosophical strategies: to protect our members’ money on the downside while capturing most of the upside of markets, and we’ve done most of what we said we were going to do,” says Lander. “We think that’s a pretty strong value proposition.”

The VFMC award looked at the fund’s integration of environmental, social and governance factors into its investment processes; its risk management, customer service and innovation, such as the fund’s introduction of an ASX 200 investment option. “We thought our members potentially want more control in their investments,” Lander says. “There might be those who could be tempted by having a self-managed super fund and this was a way of giving them more control without the cost of a self-managed fund.”

Lander said the fund had talked in the past with its investment adviser, asset consultant JANA, about the ability to be nimble. While the fund wasn’t the cheapest, the net benefit for members was there. “There was an emphasis in the Cooper recommendations that talked about net benefit to members. That whilst you were providing a net benefit, you have also got a sustainability argument,” Lander said. “There are some economies of scale (in being larger), but you could also get to a point where there could be diseconomies. It’s probably the investment story where you get the most economies from scale but with scale comes other issues, such as administration and engagement.”

There is evidence of latent industry opposition to the push towards bigger superannuation funds and mergers, and it’s an interesting question whether a smaller fund can move more nimbly in investments, which assists it to outperform and return greater net benefits to members.

Chair of the Government’s ‘Stronger Super’ consultative committee, Paul Costello said superannuation funds didn’t necessarily need to be big. “We would agree with that,” says Lander. “In fact, we have demonstrated that as a medium-sized fund, our performance has spoken for itself.

The fund’s emerging markets allocation had been of “great benefit” to the fund. “We are using an active equities manager who has constructed a portfolio based on themes identified as drivers of value creation at a specific stock level,” says Lander. “For instance, the manager has a significant position in an IT company in Taiwan based on valuations in that sector of that economy. This process leads to exposures being held in emerging markets such as Taiwan, Thailand, Papue New Guinea, the Czech Republic and Mexico. The direct exposure to the sector amounts to approximately 13% of the allocation to overseas shares,” she added.

The fund was looking at developing its range of pension products, following on from the desire of members for greater income security as they transitioned to retirement. “One thing the GFC did show is that members, particularly at retirement, are looking for more certainty, so it’s still on our agenda.  Markets had risen sharply for a couple of years and market conditions were good for a long time, and then people saw (with the GFC) what could happen,” Lander said.

“At the moment it’s fair to say that our options in the pension product mirror those in the accumulation side - obviously the tax is different, but the strategy we employ in the pension option and also whether we should be looking at more products that would give members more certainty in retirement - products that are less exposed to market volatility - we are still looking at that,” Lander said.

“This is not just an issue for Care Super. I think for the whole industry, there are a lot of people looking at it how we manage retirement nest eggs more appropriately.”

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