Australian Super, the nation’s largest super fund with $170 billion under management, sits 22nd in the ranking of the top global pension funds but pales in comparison to the trillion-dollar private funds sector, says Alberta Investment Management Company chairman Mark Wiseman.
The former Canada Pension Plan Investment Board (CPPIB) CEO and BlackRock senior executive knows the advantages and diseconomies of scale, moving from the C$330 billion fund with 1600 staff in 2016 to BlackRock’s then US$7 trillion business, which used technology to build its capacity.
“Really if you have much less than US$1 trillion (in assets) it’s almost impossible to compete globally, as big as the pension plans are, they’re not big enough to compete with the private sector,’’ Wiseman told delegates at Investment Magazine’s Fiduciary Investors Symposium.
His advice to Australian Super was to build technological capacity ahead of growth.
“People, processes and systems, all of those things are incredibly important. If you’re playing catch up, you’re building your tech from behind, you’re never going to get it right,’’ he said.
“We had the wonderful advantage, which Australian super funds don’t have, we knew we were going to grow and bringing in C$5 billion a year in net inflows, we had an ability to plan our processes to hire people and build systems ahead of that growth.
“It’s a bit like a war; when you’re at war it’s great to move troops ahead but if you don’t have the supply lines, they can’t be effective at the front lines.”
BlackRock’s arrival at US$10 trillion in funds under management was realised through technology and a “maniacal” focus on automating as many functions as possible for operational leverage, elimination of errors in the system and use of data and IT systems to make investment decisions, Wiseman said.
“BlackRock spends $100 million a year just on data. Not processing or analytics. Alternative data sources, satellite imagery, specificity around shipping costs,’’ he said.
Australian Super chief investment officer Mark Delaney said the Australian mega fund is now in “Model 3.0” of its growth phase which means a more internally managed portfolio with a large investment team operating on a global platform.
“As we get larger the proportion of assets we have invested overseas will increase,’’ Delaney said.
“Australia’s a very tough time zone to run global assets from and global investment is what we’re looking to build. We need to be in those markets closer to the assets.”
He sees Australian Super with 1000 staff in front and back-office roles beyond two years but says recruitment takes time and “bandwidth” from people doing the hiring from within the fund.
“In building 3.0, we looked at others who were $400 billion and 500 billion and saw what they were doing, the same way we developed 2.0. We’re following the same tried and true strategies with a bias towards private markets,’’ Delaney said.
The ascendancy of AI
“We looked at capability and you need a large office, you need a global footprint, you need access to good deals, good partners and highly skilled portfolio managers and you need a very efficient implementation so you don’t give up much in leakages within the portfolio,” he said.
Technological change is “coming slowly” to Australia’s super industry with fund managers still using spreadsheets and data which had not changed much since the 1980s.
“There won’t be many fund managers who don’t know how to use AI in the future,’’ Delaney said.
“Data matters, but comes at enormous expense to the business. Already it’s very large for us and alternative data costs even more money. We need to watch data expense to make sure we’re getting value for money.”
While industry funds were always innovators in terms of how they provided super products, Australian Super needed to “close its ears to others” to continue to innovate, he said.
“When we merged in 2006, people said we were too big at $15 billion, we’re never going to work. That dialogue worked for five years and now others have followed a decade later.’’
“We moved to internal management – now everybody’s doing it. You just need to work out what’s right and back yourselves to do it.”
Culture is central to growth
McKinsey partner Eser Keskiner, whose consultancy recently advised Aware Super on its five-year plan, says culture is central to sustainable growth for super funds.
“As you expand how do you make sure the culture you build over time is not changed and is unique,’’ he said.
“One thing that’s worked well is mixing homegrown talent with overseas talent that blends; usually the secondees come back to their home country and culture is well established in overseas offices.”
Keskiner said artificial intelligence and data usage was also in a “nascent” phase for Australian super funds.
“The part that is still nascent is the usual AI, big data and tech in investment decisions,’’ he said.
“There’s this fear of: ‘where will tech fit in with investment decision making? Will it displace human decision making? Is it complementary? Where do we draw the line?
“The big area is to what extent can we automate and take away analytical data analysis that will free up investment professionals to add quality on top.”