by Greg Bright
Neuberger Berman and JP Morgan Asset Management have cracked the ‘Texas model’, thanks to Sunsuper, in what are believed to be the first multi-asset mandates of their kind in Australia. But the $35 billion fund has also indexed a large chunk of its portfolio ahead of the arrival of its new CIO.
JP Morgan jumped the gun last week with the announcement of its mandate involving an information “partnership” while Neuberger Berman’s, which is an identical mandate, is expected this morning (Monday). For the best explanation of what these mandates entail, take a look at the website of the poster child for their delivery, the Teachers Retirement System of Texas (www.trs.state.tx.us). Neuberger Berman was also one of the pioneering multi-asset managers with that fund.
The announcements will go some way to counter criticism that the fund was heading too far along the plain-vanilla MySuper-dominated thinking with an over-emphasis on low costs and good marketing at the expense of strong investment returns.
This is a concern which has not been confined to Sunsuper. The long-term ramifications of MySuper, it is increasingly being argued, will be the commoditisation of the big super funds’ offerings, much like the major banks, and the eventual decline in their numbers to a mere handful. And members will be getting lower net returns along the way.
At Sunsuper, the concerns followed the indexing of an additional $3.2 billion in international and domestic shares this year, with a mandate to Vanguard, which represented just on 10 per cent of the entire fund at that stage.
This was on top of an established quant mandate of $2.8 billion for Vinva Investment Management and several quant mandates with State Street Global Advisors totalling $2.2 billion. The fund uses four consulting firms – JANA, Ibbotson, Mercer and specialist alternatives advisor Aksia.
But Sunsuper has a long history of investment innovation. It actually pioneered multi-asset mandates – as an overlay – about 15 years ago, under Don Luke as chief executive. When he was Sunsuper CIO in the early 2000s, Jack Gray recalls awarding a multi-asset overlay mandate to GMO, a firm for whom he worked in Sydney and Boston and which still is a Sunsuper manager. He says he thought that Luke had awarded a similar one to a different manager prior to his joining, too.
With the TRS model, the managers are paid a bps-based fee on the money they manage and have a lot of freedom to invest across a defined universe. But they also have to engage regularly with the fund staff, through discussions and information exchanges, with both formal white papers and less formal meetings.
There are several global managers offering multi-asset mandates to Australian fiduciary investors but the market seems to be dividing into those specialising in the TRS model, such as Neuberger Berman and JP Morgan, and those which are emphasising off-the-shelf-type strategies with less customisation, such as UBS Global Asset Management and Standard Life.
It was also announced last week that Ian Patrick, the chief executive of JANA, would become Sunsuper’s next CIO, filling the recent vacancy left by the retirement of David Hartley (see separate report).