The $A25 billion ($23 billion) UniSuper will ramp up its internal funds management capabilities, with four of its own portfolios set to be running by the end of the year, in conjunction with a project that will see its defined benefit and defined contribution sections adopt differing investment strategies for the first time.
The first internally-run investment portfolio was seeded with $93 million and went live roughly three months ago, overseen by senior investment analyst for Australian equities, John Hood.
The portfolio has been dubbed a ‘manager conviction’ strategy internally. According to UniSuper’s chief investment officer, John Pearce, the model-based approach uses proprietary information sourced from the fund’s custodian, which relates to the real-time portfolio holdings of all underlying Australian equity managers.
UniSuper’s internal investment team has developed an algorithm which, in Pearce’s words, “supports the bets” that emerge from the aggregated Australian equity portfolios.
The external managers were assured that UniSuper was not able to see their real-time holdings, Pearce said, with the information from the custodian being delivered on a collective basis only. The managers took extra comfort from the fact UniSuper was not a public-offer fund, Pearce said, and therefore not competing with them in any way.
At 50-plus stocks, Pearce added there was a “natural capacity constraint” on the amount of money managed under the ‘manager conviction’ algorithm.
While the strategy overseen by John Hood forms part of UniSuper’s Australian equity portfolio, three other internal funds management strategies are intended to help match the liabilities of UniSuper’s $9.3 billion defined benefit section, which remains open to new members.
Recently joining UniSuper on a contract basis after being restructured out of Queensland Investment Corporation last year, Simon Hudson is putting together a model-based Australian equity strategy (Pearce eschews the word ‘quantitative’) which will require new systems and more people, conditional on investment committee approval. At the same time, an internal property securities strategy (overseen by Kent Robbins) and internal fixed income strategy (overseen by Dennis Sams) are being developed. Pearce said these three would be directed toward liability matching, following Pearce receiving investment committee approval to take different approaches to the fund’s defined benefit and accumulation sections.
Pearce said the approach would not threaten UniSuper’s ability to derive scale, pointing out that many mandates would continue to stand behind both sections of the fund. He added that “the overwhelming majority” of the fund’s assets would continue to be managed by external managers.
