Fund managers that super funds trust most revealed

Although internalisation of investment functions continues to gain in popularity, Morningstar’s latest survey suggests insourcing is “by no means the only way forward”, with funds still keeping the door open to external managers and asset consultants.

All APRA-regulated funds use external managers, the research house noted, and the overwhelming majority of profit-to-member funds—over 90 per cent, accounting for over $1.4 trillion in assets—continue to engage external asset consultants. 

“In a sector trending inexorably toward 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.

Regarding the use of external managers, Morningstar found that the most commonly used investment managers for Aussie equities - for all funds exceeding $20 billion in assets - are IFM Investors, Yarra Capital Management, Acadian Asset Management, Greencape Capital, State Street, Hyperion Asset Management, and Allan Gray. 

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Meanwhile, funds most often turn to global managers Baillie Gifford, State Street, Wellington Management, Macquarie Asset Management, BlackRock, Ninety One and T Rowe Price for their international equities mandates.

For fixed income exposure, the report identified giants like BlackRock, State Street, PIMCO and Janus Henderson, alongside Macquarie Asset Management, Wellington Management, TCW Group, and Western Asset Management as those most commonly used.

Morningstar highlighted that many large profit-to-member funds manage at least some of their investment functions in-house, noting that among the large funds surveyed, the average team size has increased by around three quarters over the past five years. 

For large funds that have chosen to insource, the research house said, private assets have been a particular focus, with a majority of the "big eight" reported to have teams managing private equity, private debt, infrastructure, and/or property. 

Another nascent trend among larger profit-to-member funds has been the establishment of offshore offices, Morningstar said, adding that while four large funds—AustralianSuper, ART, Aware, and Rest—have taken the plunge, only AustralianSuper has more than a handful of staff overseas.

Looking at the consultants most typically engaged by funds, the research house said two firms – JANA and Frontier Advisors – are dominant, with around two thirds of the 30 profit-to-member funds that use asset consults said to use one of the two. 

By funds under advice, these firms cover more than 85 per cent of the sector's asset consulting market.

“The scope of a consultant’s involvement can vary; for smaller funds, they may essentially be a ‘full service’ outsourced investment team, whereas larger funds may engage them for certain steps of the process, such as capital market assumptions, manager selection, or as an external scrutineer of their investment recommendations,” Morningstar observed.