Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
‘We’re unashamedly in the business of scale’: AustralianSuper grows up – and sticks to its knitting
“Almost the worst place to be in life is between,” Paul Schroder, CEO of AustralianSuper, told media on Tuesday (August 16). “You need to be one thing or another, and we’ve absolutely nailed ourselves to the mast of scale, because size and scale and skill deliver benefits for members. We have what I describe as ambitious growth targets, because we want to get to global scale with some speed.”
And AustralianSuper is already massive. At around $250 billion in FUM, it collects some $20 billion of inflows each year – $40 billion this year, owing to a slew of mergers – and is projected to reach $1 trillion by 2040 even without gobbling up any other funds. But today it would be a “mid-sized global investor on the low side”, and to become even larger it will have to stick to what Schroder says it already does best: infrastructure, property redevelopment, private equity. But it needs to employ “deeply skillful elite talent in all of those markets”.
The talent wars are usually tough, and even tougher at the moment. AustralianSuper is the new kid on the block. It isn’t as big as everybody else, and can’t pay the same. What works in its favour is being a “for purpose organisation” and the fact that it is the new kid on the block; almost a start-up, compared to some of the more established organisations around, and one where the aforementioned talent will have a bigger remit – and more opportunities to get on with the actual business of investing – than they might get at the general partners from where they came.
“If you’re an investor for Australian super, you only have one thing to do, which is to invest to make people the most money, risk-adjusted, post-tax, and post-fees,” Schroder (pictured) said. “You don’t need to sell. You don’t need to do investor relations. You don’t need to secure inflows, you don’t need to chase mandates.”
“And the combination of a for-purpose organisation that is commercially very successful, and one that doesn’t require you to do anything other than be an elite investor, we’re finding that is very attractive to the type of people we want to attract.”
Schroder says it’s a good thing that the superannuation industry is consolidating, and believes Australia will wind up with the equivalent of Canada’s “Maple Eight” pension funds, which collectively manage $2 trillion. But AustralianSuper doesn’t want to merge for the sake of merging, or do anything that will introduce more operational risk or complexity to its organisation. It’s “earned the ability to be very disciplined about that.”
“There’s been a host of potential acquisition opportunities or merger opportunities that we’ve respectfully declined, because they would have seen us take on complexity or risk, or bend our model to too far, to maybe even a margin or cost base that we wouldn’t have been able to sustain,” Schroder said.
“Our board has very, very clearly said our business here is to help members save more money, earn more money, and protect their assets better, so they can have a better retirement. And we think that’s best done if we don’t become a bank, and we don’t become an insurance company, and we don’t become a digital services company. They’re all very important. But we’re going to be the superannuation company.”
Those Maple Eight funds have informed AustralianSuper’s growth path, and Schroder has sat down with their CEOs to seek their advice. They’ve been “incredibly generous” despite the fact that they’re occasionally on opposite sides of a deal.
“We are competitors for talent, and competitors for assets, and sometimes co investors for assets as well. I’m very drawn to this idea of coopetition – that there’s some things that you don’t need to compete about, that they’re just better for the whole world, and for markets and for the beneficiaries,” Schroder said. “And some things you have to viciously compete about. And talent and deals are part of those.”
But some parts of the Canadian Model have been more fraught Down Under, where skepticism abounds about unlisted asset valuations. Hostplus’ positive return has now been picked over in forensic detail for any evidence that it marked its own homework, while commentators have also raised the issue that improper valuation practices risk transferring wealth from working members to retirees.
“We see the issue of valuation as fundamentally important through the lens of member equity,” Schroder said. “So you’ve got to make sure that, approaching it from a willing buyer willing seller point of view, that no member is getting an advantage at the expense of another and as best you can, that you’ve got it marked.”
“I’m not suggesting this is simple. But we do have and have built really robust methods and processes. The COVID period really taught us a great deal about that in terms of the valuation process, the crediting rate process, and making sure that you’ve got sufficient tension in that process.”
