Cost and complexity lead to hybrid investment models

Superannuation funds will retain hybrid internal/external investment teams due to cost pressures and international allocations, fund executives said at the Citi Australian Investment Conference and Asian G10 Rates Conference.

VFMC head of strategy Peter Osborne said his company outsourced its global investment capability but had achieved cost savings by building its internal investment team (which made domestic decisions) to 35 employees over a number of years.

UniSuper chief investment officer John Pearce said UniSuper would not stop looking to external managers for emerging markets, global small caps and global credit.

He said the UniSuper budget could not be stretched to accommodate an internal investment manager with the right skill set. The fund had bolstered its domestic capabilities in large cap equities, cash, fixed interest and property, Pearce said.

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UniSuper's internal investment team also aligned the liabilities of large stock positions, with the 40 per cent of the fund's member base in its defined benefit scheme, more efficiently than external managers could, according to Pearce.

Alison Tarditi, chief investment officer for Commonwealth Super, said Commonwealth Super could not invest money directly. The degree to which a fund internalised expertise was dependent on ability and cost, she said.

Sovereign wealth funds from China and Singapore said they also outsourced various investment functions.

Chun Hong Chan, managing director of GIC, questioned why an institution would not outsource to an external manager that could deliver a better result, even if it had its own internal capabilities.

Osborne said an internal investment team should not be under-valued for the strong investment culture it could bring.