The country’s second-largest fund has a strong enough investment team to warrant continued conviction, a research house has said.
Australian Retirement Trust could “realistically” see an asset base of $500 billion by 2030, according to Morningstar’s latest review of the fund.
This, the research house said, is backed by the successful integration of both Sunsuper and QSuper, noting that eyes are now on future growth ambitions.
“Australian Retirement Trust’s multisector strategies have a strong investment team managing a repeatable and scalable process in generating return outcomes for its members,” the research firm said.
In particular, Morningstar pointed to chief investment officer Ian Patrick’s ability to leverage the “skills and experience of ART’s investment team”, fostering an inclusive culture that is complemented by “broad external consultant partnerships and a stable lineup of strategically selected asset managers”.
“The externalisation of the public markets assets allows for a deeper focus on the firm’s internalised private and real assets capabilities, which are well resourced and continue to prove their mettle,” Morningstar said.
Elaborating on the fund’s investment and asset allocation process, Morningstar described the fund’s approach as “well designed” and “pragmatically applied” to achieve return objectives.
“The asset-allocation process is most important for ART and starts with the board setting the investment objectives of each underlying investment option, which includes return and risk parameters,” the research firm said.
“The internal team conducts bottom-up analysis with a broad range of perspectives, including meeting with key global policymakers to get a clear understanding of structural changes, leading to the formulation of long-term asset-class returns.”
Moreover, Morningstar highlighted the fund’s “clear cognisance” of capacity risks with an asset base of $304 billion as of 30 June.
“These are mitigated through the 40–50 per cent exposure to passive/enhanced indexation within its public markets’ allocations,” the research house said.
“The scalability of this allows ART to use its risk and fee budgets in accessing high-conviction public market managers and optimising costs in private markets with its partners.”
Regarding ART’s portfolios, Morningstar said high index allocations in listed markets are complemented by a “sizable exposure to private markets”.
“As of June 2024, ART aligned its global- and domestic-equity exposures to reduce the marginal home bias and increased its allocation to infrastructure to align with its medium-term outlook. This was funded by real estate and private fixed income, while cash and sovereigns were also reduced,” it said.
The research house said that listed equities largely allocate to index and enhanced index managers with smaller idiosyncratic exposures, whereas infrastructure and property private assets maintain just under a third allocation within the default high-growth strategy, with the balance being invested across equities, fixed income, and alternative credit.
“ART is seeking to invest more directly in private assets and rely less on fund vehicles to capitalise on its scale,” it said.
Morningstar did, however, flag “key-person risks” related to the investments’ leadership team and especially the heads of the private and real assets, but didn’t provide any specifics.
Instead, the research house praised ART’s “strong investments leadership team with experience and tenure”.
“Overall, ART has a strong investment team effectively implementing a repeatable and productive investment process, warranting our continued conviction,” Morningstar said.
