The A$25 billion (US$23.3 billion) UniSuper, Melbourne, Australia, 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 different investment strategies for the first time.
The first internally run investment portfolio was seeded with A$100 million and went live roughly three months ago, overseen by John Hood, senior investment analyst for Australian equities.
The portfolio has been dubbed a “manager conviction” strategy internally. According to UniSuper Chief Investment Officer John Pearce, the model-based approach uses proprietary information from the fund's custodian that relates to the real-time portfolio holdings of all underlying Australian equity managers.
UniSuper's internal investment team has developed an algorithm that, Mr. Pearce said, “supports the bets” that emerge from the aggregated Australian equity portfolios.
The external managers were assured that UniSuper is not able to see their real-time holdings, Mr. Pearce said, with the information from the custodian being delivered on a collective basis only. The managers took extra comfort from the fact that UniSuper is not competing with them in any way, Mr. Pearce said.
While the strategy forms part of UniSuper's Australian equity portfolio, three other internal management strategies are intended to help match the liabilities of UniSuper's A$10 billion defined benefit section, which remains open to new members.
The fund is putting together a model-based (Mr. Pearce eschews the word “quantitative”) Australian equity strategy that will require new systems and additional people, conditional on investment committee approval. At the same time, an internal property securities strategy and internal fixed-income strategy are being developed. Mr. Pearce said these three would be directed toward liability matching.
Mr. 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.
Michael Bailey is editor of Investment magazine, in Sydney.
