Peter Barany

A senior Australian Retirement Trust portfolio manager has labelled the practice of ditching fund managers after a bout of poor performance and replacing them with managers that have recently performed well as “insane behaviour”.

The country’s second-largest super fund has bucked the trend of internalising investment of its $280 billion of assets. It currently has about 36 per cent managed in-house but has made clear that it would rather focus on building better relationships with external managers from this point on.  

Speaking at the Sydney stop of ART’s financial adviser roadshow on Thursday, senior portfolio manager for public markets Peter Barany said a large part of that selection process is based on finding managers with skill alignment, while warning that performance statistics should not be the entire consideration.  

“There’s this what I call the investment manager merry-go-round…where an investment manager will get terminated for usually three years of poor performance,” he told the roadshow.  

“They’ll get replaced by a similar manager who usually has three-year good performance, which is peak risk for underperformance because of a change in style, or a change in investment regime, or just reversion to the mean. 

“It’s crazy. Einstein would define this as insane behaviour, because you get on that roundabout just to do the same thing over and over and over again.” 

Barany said ART’s overall rating for a manager is determined after considering its organisation, strategy, risk, ESG, expected performance, fees and portfolio fit.

Reasons other than performance that would cause ART to re-evaluate a manager contract include a change in ownership and deviation from investment style, and importantly, personnel departure, which some in the industry believe could be especially devastating for a ‘hero asset manager’ such as one whose mandates are dependent on the reputation of a consistently outperforming CIO.  

But ART first should be able to establish trust and alignment between itself and the manager, Barany said, and this sometimes means scoping out how investment manager teams behave outside a business setting or see if they have skin in the game.  

“If a portfolio manager over at the investment team has their own money at stake in their portfolio, then we think they’re much more likely to act in the interests of ART members whose money is in that portfolio as well,” he said.  

When it comes to the decade-old argument about the perks of boutique and mega managers, Barany said ART doesn’t have a definitive answer. However, lifecycle of the manager is a key consideration for the fund. 

Early-stage managers are “hungry”, “entrepreneurial” and keen to outperform, which could inject life into the portfolio, he said, but these managers tend to have trouble turning a profit which could mean instability for the business during periods of underperformance.  

The mega managers tend to have lower risks, he said, but there could be risks of bureaucracy and staff turnover. 

“Even worse, maybe they’re a bit fat and happy and the people that leave are the ones that are actually any good. 

“We do think there’s benefit for catching a new manager at the early stage, but to do that, you need to tap in, and know who’s going where. 

“We feel like we’re tapped in at ART.” 

ART on Friday unveiled 15 choice investment options across its super and retirement products, available to members from 1 July. As part of the move, the fund is also aligning the risk profile of MySuper offerings for Super Savings and QSuper, meaning that the Super Savings account holders will have more of their money invested in growth assets for longer.

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