While Australia’s largest super funds are increasingly bringing investment management in-house, Brighter Super is charting a different course as it continues to grow.
The $34 billion fund has seen a sizeable increase in scale in recent years, largely driven by a series of successful mergers.
Born out of a merger between LGIAsuper and Energy Super in 2021, the resulting $22 billion entity became Brighter Super. Since then, the fund has picked up Suncorp’s super business to expand beyond $30 billion.
Recent years have seen the fund focus on scale, growth, and a more targeted investment strategy.
Some of Australia’s largest funds, including AustralianSuper, have set ambitious plans to manage more of their assets internally. However, the Queensland-based fund has maintained its management philosophy despite its growth.
“Our view is that while there’s been additional scale benefits from the mergers that we’ve undertaken … we don’t see that there is a competitive advantage for us to actually insource,” Brighter Super’s chief investment officer Mark Rider told Super Review.
The fund, he said, will continue outsourcing asset management, with a primary focus on building the overall portfolio, refining asset allocation, and collaborating with their consultant JANA on manager selection and strategy.
“We find [that is] potentially a competitive advantage by continuing to use best of class managers externally, and also, given our somewhat smaller size, there are strategies which we can participate in that some of the bigger funds, it’s not worth their while,” Rider said.
“We see the best way to do that is by partnering with investment managers.”
One area where Brighter Super particularly relies on external managers is its exposure to private markets which, as Rider said, aligns closely with the fund’s long-term strategy for its more than 280,000 members.
By accessing private markets through a fully outsourced investment model, the fund counts on the rigour and expertise of external managers to oversee its unlisted assets.
“We have an asset manager between us and all the assets,” the CIO said. “We have the manager managing that process in terms of looking very closely at their, clearly, their capabilities, but also their approach on valuation … So it’s an important area for the investment strategy.”
In conversation with Super Review last year, Rider said that while increased scale has created new investment opportunities, the fund’s philosophy when it comes to external management remains intact.
“On the investment side, given our scale now, we are more important to funds out there. Our approach is one where we are not looking to internalise,” he said at the time.
“We’re not aiming to have the scale where I think internalisation makes sense, so it’s working in partnership with fund managers to actually drive a return.”
While most funds have been vocal on internalisation over the past decade, external managers are still in the game, with most funds said to be favouring a hybrid approach – bringing some functions in-house while keeping experts on hand for other investments.
At a media briefing in March, Chant West’s senior investment research manager, Mano Mohankumar, said that full-scale internalisation remains rare. Only AustralianSuper and UniSuper manage more than 50 per cent of their assets in-house, while most funds that have taken the internal route manage between 12 per cent and 35 per cent directly, he said.
“This does mean that external fund managers play a critical role in super fund portfolios,” Mohankumar said. “While there is internalisation, it’s a hybrid model.”
Citing Cbus and Aware Super, Mohankumar said that both funds continue to outsource over 60 per cent of their portfolios to external managers.
“The hybrid model is what funds have chosen,” Mohankumar said.
For those looking to boost their internal capacities, like AustralianSuper, which is targeting 75 per cent of its assets to be managed in-house by 2030, he said that strong governance is crucial to internalisation, warning that it’s not just about onboarding but also about ongoing scrutiny.
Late last year, Morningstar reported that all Australian Prudential Regulation Authority-regulated funds use external managers. The vast majority of profit-to-member funds – over 90 per cent, accounting for more than $1.4 trillion in assets – continue to engage external asset consultants.
“In a sector trending inexorably towards fewer, larger super funds with increased investment insourcing, reliance on external asset consultants may be expected to decline. So far, this trend has failed to materialise,” Morningstar said at the time.
