Aware Super's default MySuper offering posted a record gain of just over 18% for the fiscal year ended June 30.
With the latest results, the default option has delivered annualized gains of roughly 9.8% over the past five years and 9.0% over the past 10, said Damian Graham, the A$150 billion ($111.7 billion), Sydney-based fund's chief investment officer.
Aware Super's Growth default option targets risk asset allocations of 31% for international equities, 19% or Australian equities, 9% for infrastructure and real assets, 7% for property, 6% or private equity, 5% for credit income and 3% for liquid alternatives (growth).
The fund's remaining 20% exposure to defensive assets are split 10% each to fixed income and cash.
An Aware Super spokesman wasn't immediately able to provide actually allocations as of the June 30 fiscal year close.
In a recent interview, Mr. Graham said Aware Super's ability to keep deploying money to growth assets through the COVID-19 crisis — taking on new private markets investments with scope to add value, strengthening and expanding relationships with partners overseas to access opportunities globally — contributed to its solid performance for the latest fiscal year.
The CIO said his team, after confirming the fund was "robust from a liquidity perspective" in the March 2020 depths of the pandemic, had great visibility on Aware Super's capacity to invest in new things, leaving the portfolio well positioned for a stellar year for risk assets — equities in particular but private market segments such as private equity, infrastructure and property as well.
Governments moved so aggressively to "backstop assets and markets" that opportunities to scoop up heavily discounted assets weren't as plentiful as could otherwise have been expected, Mr. Graham said.
"It was more a continuation of what we had been doing, which is really that broad execution across the portfolio of finding good assets...and selectively establishing some new relationships" or strengthening existing ones such as Aware Super's ties with Dutch pension provider APG Group, he said.
The longer-term goal, as Aware Super anticipates doubling in scale over the coming four or five years, is to be able to continue to find and implement good investment ideas "as we get larger," said Mr. Graham.
To achieve that goal, "we ... need to be able to build the capabilities internally to support more direct investment," while forging stronger relationships with external organizations, he said.
In recent years, Aware Super has pursued a broad strategy of having "a blend" of in-house management capabilities complementing external managers for most of the asset classes it invests in, Mr. Graham said, adding, "It's just a matter of how much."
"We're somewhat down the path in having capabilities built across all asset classes," said the CIO, with perhaps 20% to 25% of portfolio assets managed in-house now, heading — in three years' time — to between 40% and 50%.
Today, the vast majority of the portfolio's cash holdings are managed in-house, he said. For domestic equities, it's probably 25% to 30%, which could eventually grow to 40% or 50%.
But not 100%, said Mr. Graham. Aware Super believes "a blend is the right approach and so even in maturity we'll still have external managers in most asset classes," he said, adding that going entirely in-house especially wouldn't make sense "where you're relying on significant alpha."
Still, the fund is looking now to significantly strengthen its internal capabilities in private markets segments where its approach is strongly focused on adding value, he said.
Mr. Graham points to Aware Super's investment more than five years ago in Sydney's Bankstown Airport as a prime example of its approach. "We bought an operating airport but really as a property asset and we've been executing on a development ... program there over the past five years," adding value by constructing large scale industrial logistics facilities there, he said.
"We call it build to core," taking a non-core asset and developing it into what is really at the same discount rate as a core asset and getting that value uplift, Mr. Graham said.
Rather than buy a mature office building or logistics facility, he said, "we've chosen to try to develop and hence access more of the value chain," effectively a higher alpha, lower beta strategy.
And Mr. Graham said Aware Super will move to add more investment professionals in-house to better pursue those opportunities.
More than a month ago, executives of the Future Fund, Australia's A$178.6 billion sovereign wealth fund, said they will move to almost double their investment team — to 150 from 80 over a three-year span — to better position the fund to pursue needed alpha.
Mr. Graham said his team could be facing the need for an increase of a similar quantum. For example, he said, "We do expect the size of the team in some private markets areas to be materially larger."
He conceded pulling off that plan won't be easy. "Finding high quality people is not as simple as going out and buying" a stock or bond, said Mr. Graham. Finding 50 or 60 good people will take considerable time and effort, he said.
"It's really about how we generate strong long-term returns for our members, how we do that in a fashion that they're proud of," he said. "So we think about that responsible investment piece pretty strongly — and we need to do that as we get larger," passing on the benefits of scale in the form of lower fees for participants.
Mr. Graham noted that some of the scale Aware Super has achieved over the past year has come from industry consolidation — with the fund absorbing Perth-based WA Super's A$4 billion in retirement assets and Melbourne-based VicSuper's A$25 billion during that timespan. "Our guesstimate is we'll continue participating in consolidation," he said.
