New performance metrics mean it’s time to rethink the portfolio
Mark Rider came to Christian Super after working in traditional banks. And now, after a year as CIO, he is working to adjust the risk profile of the fund in light of new performance tests and a changing economic landscape.
“The fund’s performance, probably over the medium term, has been below expectations relative to the heat map, or the proposed APRA benchmark, where we are outside of that 50 basis points of underperformance,” a- he declared.
“So the main thing for me was to look at where these performance issues were and try to identify what changes were needed. “
Things have been going on for some time in terms of improving fund performance, Rider argued, but historically, he said, the fund has been managed with a more defensive bias in building the portfolio.
“One of the things about the fund, and this all predated my coming on board, was that the fund was very much focused on the CPI-plus objective and it was much more focused on absolute return,” did he declare.
“One of the key elements behind [this] was that the fund was set up… not really with a very narrow focus on peers and not with the kind of benchmark portfolio that APRA heat maps and benchmarks talk about. This highlighted a very important change in the way the fund sees the construction of the portfolio, the way it looks at certain risks in the portfolio. “
Rider said he was probably eight months into the job by the time he saw the first things on APRA’s heatmaps, and then there was Your Future, Your Super legislation, which was passed by Parliament on the last day. last week, two things he was really feeling. special attention to having to consider the structure of the portfolio.
“He probably needed to have it, he needed changes,” he said.
“Basically he had been led to be cautious about underweight growth and the managers also had, in some cases, a more conservative investment approach and the emphasis was particularly on the downside. I think when you do that what can happen is that the portfolio may end up not taking the level of risk that it needs … and so it probably hasn’t really run the level of risk for a long time. number of years than his peers.
For Rider, one of the main challenges at the moment is the extraordinary economic and financial markets in which we are seeing significant changes for the first time in many decades in the way monetary and fiscal policy is conducted.
“This is going to have significant impacts on inflation and interest rates,” he said.
“The last 20, 30 years with falling interest rates have been positive for asset markets in general… [but] the coming period is when I think the risks of rising inflation are increasing [and] higher inflation makes life difficult to generate real returns if history is a guide. I think the next decade will be a tough time for pension investors. “
Finding the defense-performance balance
Part of the problem with rebalancing the portfolio was finding the right mix of defense assets given that fixed income yields have come under extraordinary pressure in recent years.
Rider argued that FI was a “really tough” area of defense, saying the problem was, over the past 20 years you could have the best of both worlds, you could get bond defense, and you could also get revenues.
“What you get now is you don’t get that close to defensive end and you don’t get a lot of the revenue from it, either,” he said.
“This is an area that we are looking at really well and this is not an area where we have settled on the roster, we are in the middle of a review on this. From an income perspective, we have areas where we are looking at some kind of substandard debt, so it’s private debt. But one area probably, which is a little different in our portfolio, is that we have a defensive impact portfolio. “
He said that with the impact portfolio, the fund seeks to generate “appropriate” returns, but doing so with investments that have a positive impact on society, whether through impact bonds. social or loans for renewable energy projects.
“We get the income in part because we usually get a variance on the bills. But you don’t benefit from any duration defense that you traditionally had on bonds, but nonetheless, these assets are much less volatile and quite decorrelated in general with most asset classes. What we are seeing is that we are getting income and while not being purely defensive it provides diversification in the portfolio, ”he said.
Small can be beautiful
Christian Super has nearly $ 2 billion in assets under management, which places him among the smallest funds in the Australian super landscape. But, while acknowledging a desire for growth, Rider argued that this could be seen as an advantage.
“What [being relatively small] allows is to differentiate your approach, so in our case, we are a non-denominational Christian fund. We invest on a responsible and ethical basis, in accordance with the convictions of our members, ”he said.
He admitted that the bigger funds clearly have advantages of scale, but said smaller ones could be more focused and nimble in terms of strategy implementation.
One of the strengths of the fund according to Rider was that Christian Super has experienced strong and sustained organic membership growth for many years.
“Over the past 12 months, our membership has grown by three and a half percent. This comes on the heels of numbers around this level for several years now, ”he said.
“We have 30,000 members, but those who identify as Christians and who engage and attend church regularly number in the millions. There is therefore a large potential market from this point of view. One of the peculiarities of Christian Super is that we are an industry fund, but about half of our members are preferred members, they are not in default by their employer.