<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=369136441694388&amp;ev=PageView&amp;noscript=1">

Podcast Transcript

Episode 80, Season 1

How to invest $70 billion in an overpriced market, with Andrew Fisher


Andrew Fisher: 00:00 I think what people perhaps underestimate is that even if you’re the best investor in the world, the best investors in the world are usually right about 60% of the time. So if you’ve only got four choices to make and you’re really good at your job, you’re still going to be unlucky 25% of the time. You’re not going to look good. So the more you can expand your breadth of investment opportunity, the more you can find things that are genuinely different, that gives you an opportunity to basically use your knowledge advantage to make better decisions more consistently.

Fraser Jack: 00:29 Hello and welcome to the Goals Based Advice podcast, where I have conversations with pioneers of the new world of financial advice. I’m your host, Fraser Jack. I want to thank you so much for tuning in today. I’d just like to thank our supporting partner, advice intelligence, for powering this podcast. And if you’re enjoying this podcast, then please help me spread the word. I know I find a lot of people in our profession still don’t listen to podcasts, and to be fair, it’s mostly because they don’t know how. So I put the challenge out to you all, for your good deed to the week, to help your friends and colleagues by showing them just how you listen to podcasts and get them involved.

In this episode, I chat with Andrew Fisher, who is the head of asset allocation at Sunsuper. He and his team look after $70 billion in members’ money. We cover many topics, like the use of alternative assets as used by many funds. Also, investing in global markets versus the Australian market, and just how investment managers classify growth or defensive assets, when it can appear from the outside, that many managers classify them differently, causing this inconsistency which makes it almost impossible for clients to compare one so-called balanced fund with another.

Andrew was a fantastic guest and he really, really knows his stuff. So if you help your clients with investments or super advice, then this episode is a must. Let’s hit play on my chat with Andrew Fisher. Welcome to the show, Andrew.

Andrew Fisher: 02:03 Thank you very much, Fraser.

Fraser Jack: 02:05 Now, do you want to give the listeners a quick overview of just who you are and what you’re doing at the moment?

Andrew Fisher: 02:09 No problem at all. I work at Sunsuper, so I’m the head of asset allocation at Sunsuper. You might know a little bit about Sunsuper. We’re a large profit-for-member fund, historically based in Queensland, but really trying to improve our national presence in what we do. We have over a million members. We have over 70 billion dollars of assets under management at the moment.

What do I do within that framework? When we think about investments, what we do is we think of it as two businesses. We have the customer-facing, administration side of the business, they’re the people that deal with our one million-plus members. My job really is to look at those 70 billion dollars of assets and decide what to do with them. So we have a range of different diversified options that we offer to members. We offer growth option, balanced option, conservative option. Me, and not just me, but my team, really, let’s be honest. What we’re responsible for doing is getting the best possible outcome within each of those different options, so building the best balanced option that we can, building the best growth option that we can. So that, with any luck, give our members the best possible retirement outcomes that we can.

Fraser Jack: 03:18 Fantastic. So no pressure, just 70 billion dollars to look after. No pressure at all.

Andrew Fisher: 03:23 No pressure at all. What you do is you just drop a couple of zeros off and it doesn’t seem as scary.

Fraser Jack: 03:29 Just assume it’s your own money and you don’t want to lose it.

Andrew Fisher: 03:32 Yeah, exactly right.

Fraser Jack: 03:33 Now you were described, introduced to me by somebody who I know quite well, Will Burke in Queensland. He described you as one of the smartest people he knew, which considering he knows me, puts me well down the list. So big shoes to fill there. Do you want to give us, just go back in time and maybe let’s have a chat about how you become the person that looks after 70 billion dollars of members’ money?

Andrew Fisher: 04:00 Yeah, all right, no problem at all. I can give you the full life story, but I might not go back too far. So if I think about really where I started working in finance, so I’m an actuary by training, so I studied actuarial at university. From there, I went into the banking sector. I worked at Commonwealth Bank for about a year and a half. That was probably about a year longer than I’d like to work in a bank, to be honest. That actually led me to taking a year away from work and what I did there was I really just traveled around Australia, do all sorts of odd jobs, school of life to some extent.

From there, the next thing I did was worked for a software company actually, building financial software, which was based in Perth. Five years there. Then the next thing for me was well, I decided I’ve done all this actuarial training, why am I working in a software company? Maybe I should be an actuary. So I did that, that lasted for 18 months, again. So that was another one of those failed experiments.

Then I went from that role, then I actually met the former Head of Asset Allocation at Sunsuper whilst I was working in that job. Sunsuper was actually a client of ours in that role. I went from there straight into Sunsuper. I think I finally found something I enjoy. I’ve been here for some time now.

Fraser Jack: 05:25 Fantastic. Yeah, so interesting journey. We’re here now. You’re at Sunsuper. Sunsuper’s fairly well-known as an industry fund that’s a little bit different to other industry funds, multi-industry fund, I guess, if we call it. A lot of what you’re doing is with a million members, that’s a lot of new money coming in every week, isn’t it?

Andrew Fisher: 05:51 Yes, absolutely yes. Yeah, so maybe if I touch on perhaps what’s a little bit different about Sunsuper. So why we’re different. Not a lot of people actually know this, but if you think about the profit-for-member sector, what a lot of people think of is the big union agreements and the guaranteed money that that brings in. I think what’s unique about Sunsuper is that that’s never been our history. So we’ve always been a multi-industry fund and whilst we’re listed on some of those agreements, we’ll be second or third, which means we actually don’t get any of that money coming in. We’ve always been a profit-for-member fund for business.

What’s that led to, I think, is a culture of being perhaps more competitive and fighting for the money that we have. So that’s probably why we look different and smell a little different to some of the other industry funds. Sometimes, I’ve heard the expression used, “The commerciality of a retail fund with the heart of an industry fund.” It’s not how we really describe ourselves, but it’s perhaps a decent analogy for how we’ve grown up historically.

Now, in terms of the flow, though. I think we’ve always had strong inflows. I think our Queensland background has been really important for that. We’ve tended to be the Queensland fund of choice in the small business sector there. So that’s led to really strong inflows, and then even more recently, the Royal Commission obviously has led to even bigger inflows.

I think the question you’re probably getting at there is what do we do with all that money? There’s a lot of money coming in the door. Five to 10 percent new money, year in, year out. You’ve got to find places to invest it, and in particular, in a market where most people would agree that investments are looking expensive, you’ve got to keep buying investments into an expensive environment. That’s a challenge that we face every day.

Some of the things we do about that. We use derivatives fairly extensively actually, so when cash comes in the door, we use derivatives to make sure we get invested quite quickly. We’ve done that for over 10 years now. I think that’s just a reflection of the scale that we have and the growth that we need to do that to make sure we stay invested. Then what we do is we try to be quite opportunistic when it comes to investing. So we don’t just spend the money straightaway. That derivative overlay that we use and I’m trying not to be too technical here, but we basically, we can maintain investment without being forced to invest. That gives us the ability to be quite opportunistic when we see opportunities. We have a lot of cash to throw at them if there’s a good opportunity.

Fraser Jack: 08:25 This was an interesting thing you mentioned. Markets being possibly overpriced or in an expensive environment. Obviously, if we think about the market as a whole at the moment, with all of this new super money, not just Sunsuper’s money but everybody’s superannuation money coming into these markets, and a fairly small market within Australia itself, but yet a lot of money coming into that market. Are we going to see it constantly being overweighted or overpriced?

Andrew Fisher: 08:55 It’s a really good question. So I’ve seen some research recently that would suggest that the superannuation sector in aggregate owns something like 30% of our stock market today. That’s projected to go up to something like 50% in 10 to 15 years.

Now if you think about that inflow of money, there’s two ways to think about that. One is that well, we can’t keep doing this. So if we can’t keep doing this, what does that mean? I think you’re going to see superannuation funds in aggregate move more and more money offshore. So that’s one outcome, and more and more money out of the listed markets, perhaps into private markets domestically as well. So you have that trend. But then what you also have is very strong buying pressure on the market for the next 10 to 15 years. Even taking into account the fact that we’ll be buying less of the market, we’re still going to be a huge inflow there.

  So on the one hand, you can see a case for perhaps wanting less Australian equities. Then there’s another, also a very strong case for wanting more, because there’s a weight of money coming in behind it and there’s going to be a stronger weight there.

So I think it’s one of those classic situations where it takes two to make a market. You can use that as evidence to support whichever strategy you’d like to pursue. I think we’ve taken a fairly balanced approach with that where we will gradually reduce our Australian equity holdings, I think, as we go forward, but we don’t have an aggressive view to move any faster than the market on that.

Fraser Jack: 10:20 Yeah, that’s a really interesting stance then, heading up towards 60% of super money coming into the market. That’s probably encourages businesses then to maybe move to Australia and list on the Australian market, knowing that that supply and demand equation, there is a huge demand for companies to invest in.

Andrew Fisher: 10:39 Yeah. I think that’s true. I was actually in the US last week, doing some research and we were talking to a company in Silicon Valley that was basically making that exact case. It’s an awful lot easier to list their company in Australia than it would be to list on the NASDAQ because they’d have to be enormous to list there, whereas they come back here, they could list at a much smaller scale, and I think the demand for that money would be much higher.

Fraser Jack: 11:06 Well, okay, here’s some interesting points there. Now you’ve mentioned obviously going offshore and looking around at different markets, but also are fairly well-known for alternative assets. Do you want to talk to us a bit more about alternative assets?

Andrew Fisher: 11:20 Yeah, absolutely. So if you think about my role, asset allocation. In the absence of any alternative assets, I’ve really got three choices to make. Bonds, equities or cash. You can split bonds up into credit, so maybe four. Cash, bonds, equity, credit. Alternative assets makes my life substantially, I don’t want to say easier, but it gives me more opportunity to be correct. I think what people perhaps underestimate is that even if you’re the best investor in the world, the best investors in the world are usually right about 60% of the time. So if you’ve only got four choices to make and you’re really good at your job, you’re still going to be unlucky 25% of the time. You’re not going to look good. So the more you can expand your breadth of investment opportunity, the more you can find things that are genuinely different, that gives you an opportunity to basically use your knowledge advantage to make better decisions more consistently.

That’s one reason why we like alternative assets, so basically diversification is what I’ve described in a fairly convoluted way there. That’s one thing that’s really good about alternative assets. The other thing that’s really good about it is, for us, we can use our size and scale to advantage there. So being big does give you an advantage in that market. You can take controlling stakes of assets and ensure they’re being managed for long-term outcomes.

One of the things, I’m sure you and your listeners will observe, when you look at listed markets is those companies tend to get managed to the CEO’s lifecycle, not to the investors’ lifecycle. When you own something for life and you have a strong position in it, then you can ensure it is managed to your lifecycle as an owner. So taking things off the listed markets or buying things that are not listed, gives us that advantage as well. There’s a control advantage and then there’s also a diversification edge that we get. A lot of the assets that we own in the alternative space are not things you can get in traditional markets.

Fraser Jack: 13:15 Yeah, so what are some of the examples of alternative assets?

Andrew Fisher: 13:19 For us, so we use infrastructure quite extensively. Infrastructure is things like airports, toll roads. Those are the listed examples, but then we also have things like data centers for example, are increasingly becoming the infrastructure of the future. If you think about where business is heading, I think a data center is perhaps as valuable as owning an industrial park at the moment.

So we have infrastructure. Obviously property. I’ve just given you an example of some of the new areas of property. We also have caravan parks in our property portfolio. What we try to do is look for things that are different. Things that are different that are going to generate a decent return. That to us is the ideal asset in the portfolio.

We have private market investments, so private debt, private equity. We use some hedge funds as well. Then we have the more esoteric diversifying exposures, things like catastrophe risk, which is re-insurance of weather events. We will buy life insurance books as well, so things that are really uncorrelated at all with markets, but in essence, you earn a risk premium. You’re taking some risk and you’re getting paid.

Fraser Jack: 14:38 Yeah, that’s really interesting. I can definitely see it from your point of view how alternative assets can be great for you, with more money coming in every month and having to find a marketplace for it. One of the big things advisors find, the problem with alternative assets is the transparency factor. So how do you manage that? How do you try and push some transparency back to the advisors?

Andrew Fisher: 15:01 Yeah, no, that’s really good. Look, it is, it is a challenge. No matter what I tell you here, it is a challenge to get that transparency. So we do as much as we can. You would have come along... so we hold advisor events where we talk about our portfolio. I think you’ve come to one of those. We will produce publications. We will go out and visit advisors and actually give them some insight into what’s going on in the portfolio. We’re not opaque by design. It’s just that the assets themselves can be somewhat opaque because you can’t pick up a newspaper and read about them on a regular basis like you can CBA. If we own CBA, everyone knows what’s happening there.

The responsibility is on us really to educate our investors, whether that be advisors or members, on what it is that we own on their behalf. We produce a quarterly publication that anyone can lift off our website, that will go through the major holdings. You can always reach out to us, send us an email, if you’ve got a question, we’ll answer it. We’re very comfortable being as open as we possibly can. It’s challenging for us to basically reproduce the Financial Review on a daily basis, on all of the assets that we own, if that makes sense.

Fraser Jack: 16:19 Yeah. So I sort of see it as a big communication piece then, really just trying to communicate either directly to the member or through the advisor what those alternatives are and how they work.

Andrew Fisher: 16:28 Yep. Look, the best thing for us is feedback on that. We produce information, if we get constructive feedback, either positive or negative, to say, “You need more here, you need less here.” That helps us refine what it is we’re putting out into the market and how we’re communicating effectively with people.

Fraser Jack: 16:48 Okay. Also part of that conversation around these alternatives assets is, and it’s certainly a big topic with advisors, is this growth-defensive split conversation that you and I have debated before. We currently have this idea that something is either growth or defensive, and there is no real structural rules around what it is. It’s sort of up to you to decide, is it?

Andrew Fisher: 17:16 Yeah, it is. To an extent, it is. We’ve discussed this before. I think the best way to think of it is there is a spectrum from zero to about 150, in terms of how growth or defensive an asset can be. You can have assets that are actually more growth-like and are levered-growth versus an equity market. The classic measure of what a growth asset would be would be something like equity beta. So if you’re familiar with classic CAPM model pricing, beta is the risk of equities, you can be riskier, you can less risky. The way we think about is we think about the whole portfolio we’re trying to build. What is the growth-defensive profile we want for that whole portfolio? And then how do we most effectively put together a portfolio with a spectrum of assets, some of which are partially growth, some of which are partially defensive, some are fully growth, some are fully defensive. How do we get the best possible aggregate portfolio that we can?

Where this gets us into trouble from time to time is that people like to classify things as either growth or defensive, with very little gray area between and there’s an awful lot of gray area between them. There’s things that go into a lot of people’s defensive portfolios that are arguably quite growth-y, there are things that go into growth portfolios that are quite defensive. One of the things that I think’s quite important is in the market like we have today, in particular where most people’s traditional defensive assets are looking incredibly expensive and very unattractive, do you want to, in essence, force people to own those assets? Which is not what we want to do. We want to find alternative defensive assets. We want to find assets with part-growth, part-defensive characteristics that we can use to replace the defensive assets in the portfolio and we think that gives us an edge because not many people are prepared to do that.

Fraser Jack: 19:17 Yeah, I also think of the scenario because we’ve got this problem. I think it’s a problem where we just say, “This is a balanced fund.” That balanced fund doesn’t reflect anything like somebody else’s balanced fund.

Andrew Fisher: 19:30 Yes.

Fraser Jack: 19:31 So we have a comparison problem. Members and consumers have this inability to actually compare two balanced funds with each other, because they’re so completely different. So introducing this spectrum idea could really include that conversation where you’re not balanced or growth, sorry, you’re not defensive or growth. You’re actually a bit of both. Also, how does debt go into that, because if you were to purchase an asset outright, it might be a bit more defensive than if you were to borrow and invest that?

Andrew Fisher: 20:03 Yeah, look, exactly right. The amount that you... in essence, if you think about what an equity is. What is an equity? You have a stream of cashflows. What does the CFO of that company do? They go and borrow a lot of debt, in essence, lever those cashflows up to increase the return to the equity holder. Some of the return goes to the debtholder as well. So there’s an awful lot of defensive assets, for example, backing CBA. You can buy CBA debt or you can buy CBA equity. The difference is equity gets all of the earnings and all of the risk around earnings, debt gets the guaranteed cashflow. If you took all the debt away and you just own CBA, it’d be a very defensive earnings stream. You’ve basically just got a net interest margin that you’re getting paid. Those net interest margins are fairly stable, bit of volatility, but fairly stable.

You can think about that with any asset really. Now, when you own things in private markets, you own things directly, you can actually control essentially that level of debt that you apply to it. The example I would give is an office building. You have a stable office building in the middle of the city, fairly stable rent profile. If you don’t borrow against that asset and you just collect the rents, you get the rental yield fairly consistently. The likelihood that you lose an awful lot of money there is pretty slim. That’s definitely partly defensive, partly growth.

I think what we risk as an industry if we decide that everything has to be either growth or defensive, then what that forces people like myself to do, is to say, “I have to make that a growth asset. I’m going to borrow money against it and make it a growth asset.” So we can always do it, but it’s not always in the best interest of our members and investors. The end result would be I’m borrowing money off a bank to go and buy debt off that same bank on the other side. And there’s a spread to be paid and we know who collects it.

Fraser Jack: 21:54 Fair enough. So let’s talk about this concept of the fact that everybody’s different and you have to make these decisions, is it growth or is it defensive? And then when you do that, you put it into a bucket and you wrap it all up as a balanced fund or a growth fund or a high-growth fund or something like that. How do we then bring that spectrum or communication to all of the other fund managers out there to really make it a bit more transparent for the end member or consumer?

Andrew Fisher: 22:22 Yeah, it’s a good question. I think this is the place where financial advisors really earn their money for their clients. I can tell you what I think. But in the end, your listeners are the ones who are going to listen to someone like me or listen to another fund manager or listen to everybody and work out, “What’s the best outcome for my client?” So we have a large proportion of, in essence, default money, where we make that decision in aggregate, but we don’t take into account anyone’s personal situation when we do that. We’re just saying, “In the absence of any advice, here’s a good long-term solution on average, for the average person.” We can decide what we think growth and defensive is and what the right balanced portfolio is.

But where advice really sort of rubber hits the road, is the advisor can look at this and say, “Okay, you call that balanced. Someone else calls it growth, but I know that underlying what the risk profile is, because I’ve done the work. I can help you, as my client, navigate all this complexity and uncertainty and help you make those comparisons.” It is actually quite challenging for us. It’s a frustration for us when we see a balanced option and a conservative balanced option and a growth option that have all got the same underlying risk profiles and we get a call from a member saying, “Your balanced option underperformed their balanced option,” because their balanced option had different risk profiles. It’s very, very challenging. I can understand why it’s frustrating for the advisor, but I also think it’s an opportunity at that level, to actually help people navigate that, because it’s very hard for us to do that.

Fraser Jack: 24:03 Yeah. Yeah. It’s extremely hard for consumers to understand. It’s hard for advisors to do as well because they spend a lot of time obviously researching those underlying assets. But yeah, I guess the point I really want to try and make is wouldn’t it be easier if all the fund managers got together and decided on a spectrum or a way of doing it? I think one thing that we’ve learnt out of Royal Commission when it comes to advisors, it would have been much easier for us to self-regulate than have somebody come over the top and regulate, the regulatory industry, on some of that, “It has to be done because you didn’t do it yourself,” sort of thing.

Andrew Fisher: 24:35 Yeah, no. I completely agree. I think where we could get better... It’s really challenging and you would have seen in the newspaper recently that APRA’s already threatening to regulate the industry on this. I think that if we go down that path, what we’re going to end up with is a scenario where they say, “This asset here is growth or defensive. I don’t care.” Then if you go back to my earlier comments, that’s going to force us to lever potentially those assets to make them growth, which I don’t think’s a good outcome.

So I think you’re right. We do need to self-regulate and get this right. One thing we can at least do at a minimum is agree on what balanced means or what growth means. That shouldn’t be too hard for us. I think even if you can take the example of the two big... so there’s surveys that we engage with, there’s two big surveys. One’s SuperRatings, one’s Chant West. You look at those two surveys, balanced in SuperRatings is 60 to 76, growth in Chant West is 61 to 80. So basically Chant West growth is SuperRatings balanced. What do you say?

Fraser Jack: 25:49 There’s a few more people than just the fund managers here. We’ve got to bring all the aggregators in line too. Yeah, so there’s a huge, obviously, a huge piece of this jigsaw puzzle. It’s got to start somewhere. Hopefully, somebody will start it and get it done.

With regard to as you said, the first piece of the puzzle, just agreeing on what balanced and growth and those sort of things are, yeah, to me it’s all around starting with the member, starting with the consumer and going, “Right, what do you think it is? What do you expect it to be?” And putting those parameters around it.

Andrew Fisher: 26:21 Yeah, no, exactly. The regulator did this for risk, so the regulator did come in and say, “This is how you’re going to have a standard risk measure.” You’d see this now on every multi-asset product, there’s a standard risk measure that gets applied. I think the logical next step would be to say, “Each of those standard risk measures ultimately translates to a description of what that is.” I think they were prescriptive in there on what a conservative option is. So conservative option must have this sort of standard risk measure. So I think that’s helped to an extent. That would be the logical place to, I think, make those comparisons. You have a standard risk measure, then you have a standard definition to what that risk measure reflects.

Fraser Jack: 27:06 Yep. Now markets are doing some strange things at the moment. There’s not a lot of people out there talking about lots of growth over the next few years. How do you see it all panning out?

Andrew Fisher: 27:15 Yeah, that’s a good question. I think we mentioned earlier around the weight of money and what’s going on there. I think we probably shouldn’t underestimate just how important that is for what we see as an outlook for the world.

  Like anyone else, I’m going to tell you I see a low-growth environment, low-return environment going forward. What we try and do is understand why that is. For us, I think that weight of money side of the equation has actually got a lot to do with that. What that means though is if you think about the weight of money, that weight of money’s not going away anytime soon. Demographics are creating more savings, so there’s this demographic push to have more savings across the world. More savings means more money looking for a place to invest. More money looking for a place to invest means that the return on investment you’ll accept on that money is going to gradually trend down. So we’ll invest at lower and lower return on equity because we’ve just got money to invest. That’s basic economics, really, like supply and demand of money. Supply and demand of savings and capital to invest.

If I think back to my classic economic training, which I wasn’t particularly good at, to be honest, but paradox of thrift was one of the few things I remember from economics and I think that’s a fairly good explanation of that. The more you save, actually, it’s a drag on economic growth. That’s one of the challenges.

  What that also is translating to, I think, is lower productivity across the world. So when you think about what the building blocks of growth and then the building blocks of returns are over the long-term, it’s number of people increasing and output per person or productivity increasing. You put those together, that’s economic growth. So you’ve got the number of people reducing, so population growth is slowing, and at the same time, you have this downward pressure on productivity or output per person because all of the savings that we have is really grinding down that return on investment. What that means is returns will be low for an extended period of time.

  Now, we then have to think how do you navigate that environment? Because what I see looking forward is an environment where we’re arguably getting towards the end of an economic cycle, we’re probably closer to the end than the beginning, if you think about 2008 was, 2009 was the beginning. So we’re arguably closer to the end than the beginning, but at the same time, interest rates are somewhere closer to zero all over the world. I can’t think of too many scenarios in the past where we’ve had a deep, dark recession that started with interest rates at zero.

  So you put that all together. The way, one of the classic things that investors talk about is the idea of a carry trade. The way you describe it is you’re picking up pennies in front of a steamroller. So you’re thinking about that analogy of picking up pennies in front of a steamroller, that’s sort of how people would think of late-cycle investing.

  The way I’m thinking of that, and the way we’re sort of thinking of that, is we possibly are late-cycle investing and we might be picking up pennies, but all things considered, the pennies look bigger than they typically do, because rates are so low and the implied return on equity versus bonds and cash, actually looks pretty good. So the pennies are a bit bigger and the steamroller doesn’t look particularly concerning because how deep and dark is a recession going to be if we start from zero rates? We may see a cyclical downturn but it doesn’t look like an environment where you’re going to see a big unwind in liquidity and a big, deep, dark recession from here.

Fraser Jack: 30:57 Yeah, I had this unsubstantiated idea that the more we talk about the recession, the less likely it is.

Andrew Fisher: 31:04 Yes, yep, absolutely. The example I always give, I get to talk to a lot of people about this. You meet two types of people. You meet the one person that says, “I think there’s going to be a recession in about 24 months.” Or, “I can’t see a recession next 24 months.” To me, it’s exactly the same story, it’s just one’s pessimistic and one’s optimistic. You very rarely come across someone who’s going to predict a recession inside of 24 months and no one has a clue what’s happening after that.

Fraser Jack: 31:31 Yeah. I actually like this idea that if we start from a place of no one really has a clue what’s going to happen in the future and you want to get a guess that’s more accurate than the next guess, I suppose.

Andrew Fisher: 31:43 Classic market efficiency will tell you that the price right now is a very good reflection of everyone’s aggregate view of what the future is going hold. I’d say people are probably more pessimistic than otherwise, right now, given what you see in interest rate markets. Negative bond yields tends to suggest people see a recession in the next two years. But on the flip side, what you’re seeing happen in equity markets would suggest that that’s not what people are seeing. So you’re getting some conflicting signals there.

  What that means is that equity returns look reasonably good. Bond returns look pretty bad. You’ve got to make a decision. If you think that there’s a recession imminent, then you probably don’t want to own equities. But in the absence of that recession, equities really should be how you’re investing your money right now.

Fraser Jack: 32:32 What else do you own? As you mentioned before, if you go really defensive, you could actually go backwards. How’s that a defensive strategy?

Andrew Fisher: 32:41 That’s another good thing as well. If you think about our membership is quite young, we’re investing long-term for them. Doesn’t matter how deep, dark recession. Every downturn is succeeded by a nice big upturn. The money always comes back.

  One of the few ways we can destroy long-term value is to not take risk because over the long term, our members have a very long investment horizon. Even if there’s a correction, they’ll get it back and more, if they stay invested.

  So time in the market will definitely add value if you can do it. But I think the timing decision to buy at the bottom is a lot easier for us than the timing decision to sell at the top. Because if you get that wrong enough for long enough, that money doesn’t come back.

Fraser Jack: 33:25 Yep. Now take us forward a few more years from that, I guess it’s very hard to predict the long-term stuff, but we do know the superannuation environment itself is doing a great thing for many people.

Andrew Fisher: 33:39 So longer-term. Our longer-term views would be, look, economic growth will be slower than it has been. Our returns will be less than they have been, but we should still really expect from, say a balanced option, something in the order of six to seven percent over the long-term is what we should be expecting. Now there’ll be fluctuations around that, of course. When I say balanced option, I should be careful to say what I’m talking about there. Balanced option, that is for us, that’s sort of 70% growth asset. So a 70% growth asset profile, we should expect six to seven percent returns.

  Where does that come from? That will be two to three percent cash returns, then you think about another half to one percent on top of that for bonds. So bonds will be in the 2.5 to 3.5 range, call it three percent. Equities will be that plus about four, seven percent. I’m really greatly simplifying it. So 70:30 should get you just north of six percent over the long-term. Then if you can make use of alternative assets, you can pick up additional risk premiums on top of that. That’ll get us up to about seven percent, long-term expectation.

Fraser Jack: 34:46 Fantastic. So as you said, those alternative assets, again, can be really great for you to try and increase your returns. We just need to work on that transparency, I guess. Factor around how everybody can know about what those alternative assets mean?

Andrew Fisher: 35:01 Yeah, absolutely. The best thing for us to do is to talk about it, right? We can tell you about the airports that we own, we can tell you about the toll roads, the electricity grids. I think the other important thing about it is transparency around illiquidity and what that means, because they’ll be the other big concern. You own these assets but you can’t sell them when you want to. That’s absolutely true. We can’t sell them when we want to. This is the benefit of being big and having big scale, that’s why we can do this because we have these big inflows coming in, or even in the absence of those, we have such a large pool of members and a large of pool of assets that we can manage that liquidity quite comfortably.

  If you think about the fundamental of what a financial institution is, it’s a liquidity transformer. Even if you look at your bank down the street, you give them a deposit, they guarantee they’ll give that deposit back to you the next day if you want it. Then they’re going to go and lend that money out to someone for 30 years for a home loan. So they’re doing exactly the same thing we are.

What is most important in all of this is confidence in the system. So if you’re going to do that, then you need to make sure that you never test that liquidity. So we’re very conservative in the way we invest. We have a meaningful allocation of alternative assets, but we’re very thoughtful about exactly how much we can do and how hard we stress test that portfolio because the only real way to mess up this whole liquidity transformation is a run on your fund. So we need to make sure we have a membership that’s confident and advisors and everybody else is confident that we can make good on any liabilities when they fall due. And we can.

Fraser Jack: 36:48 I really like this term. Liquidity transformer. I’ve never heard it before. Nothing to do with the movie, of course.

Andrew Fisher: 36:53 No, that’s right.

Fraser Jack: 36:55 Well, thank you very much. Tell me, if you’re chatting to somebody at a barbecue, just a friend of yours, and they’re thinking about getting financial advice, what tips do you give them?

Andrew Fisher: 37:05 Yeah, that’s really good. So what tips do I give? Tip one would be look for somebody that you trust, because I think it is really important. Even from my perspective, look for someone you trust, but not just someone you trust, someone your dependents trust as well. So I think about what’s important from financial advice. Part of what’s important is putting you in the right investment, for example. That’s a part of it. But I think it’s more around thinking about your whole financial situation and who’s the person you can trust if something goes wrong. Who do you trust to help you navigate through life’s challenges because going in to talk to a financial advisor and saying, “Okay, where should I invest my money?” That’s a conversation that lasts about five seconds but what happens in all of the meaningful life events that I go through and who’s going to help me navigate those and make good decisions? And help me navigate the emotions that I’m going through?

I think about the obvious one that jumps out here is right, if heaven forbid, something happens to me. And my wife needs to make a life insurance claim. I want her to trust the person that she’s going to go talk to, which would be my financial advisor and help her navigate through probably one of the most challenging periods of her life. More than anything, find a financial advisor, find someone you trust, to help you navigate through.

Fraser Jack: 38:34 Yeah. Good advice. Also, I can’t get that liquidity transformer thing out of my head. When you as a client’s talking to an advisor and you’re putting your money in. Excuse me. And you want to be able to get that money back out at some point as well.

Andrew Fisher: 38:47 Yeah, exactly right. Exactly right. You’ve got to think about that. And advisors have to make that decision on anything they do, right? You look at the classic retirement product you have, which is a lifetime annuity. We don’t use a lot of them, but they exist. There’s a trust in that, that you’re going to get the money back that you put in.

  So we make these financial decisions all the time. One of the important things I think, that the advisor does is really work out who do I trust? If I put the money in, I can get the money back.

Fraser Jack: 39:19 Yep, great call. Now tell me, if you could go back in time and give yourself some tips and advice, where would you go and what would you say?

Andrew Fisher: 39:29 Look, I’m one of those people that thinks that, to some extent, things happen for a reason. So all of the bad investment decisions I’ve made historically, and there’s been a few, I wouldn’t be where I was if it wasn’t for every single one of those. So the obvious one that jumps out at me is I really wish I hadn’t had bought that house in Perth when we lived there. Because I’ve still got it and it’s not doing very well. So that would be an obvious one.

But I think one thing, if I go back in time, I think before I worked in superannuation, I perhaps had little to no recognition of the importance of it. I even find this when we interview people. We’ll have people come in to interview for us, graduates, people like that. And one of the questions you always ask is, “So what do you do with your superannuation? You’ve had a part-time job.” And you never get a good answer.

So there’s one piece of advice I give myself or anyone is educate yourself about superannuation and long-term financial security. They should really do it at school. That’s probably the one thing I probably was... misunderstood at a young age and could have done better with.

Fraser Jack: 40:36 Yeah, it’s a very interesting... you’re right because you look back in your younger years and go, “It’s this thing. I can’t touch it. It’s too far away. It has no emotional value to me at all. Therefore, I don’t care about it.”

Andrew Fisher: 40:51 Yeah. You make decisions with it on very limited information. Now I’m in the microcosm and I understand what’s going on there, I look at the amount of information you have when you’re outside of it, and you’re making these decisions, and they’re quite important decisions. Education would be fantastic for-

Fraser Jack: 41:12 Microcosm. I just learnt a new word. I’ve never heard that word before. Microcosm. In the microcosm. Fantastic.

Thank you so much for coming on the show. Really appreciate your time and getting a bit more light on this alternative asset conversation. Starting that conversation about growth and defensive and the spectrum of growth and defensive rather than just a black and white conversation, as you’ve said, a lot of shades of gray in that spectrum. So thank you for coming on the show and sharing. I really appreciate it.

Andrew Fisher: 41:43 Yeah, no worries. Thank you very much. Of course, if any of your listeners want any more information, just reach out to us at Sunsuper. We’re more than happy to share.

Fraser Jack: 41:49 Fantastic. They can find you through Sunsuper or on your LinkedIn page, perhaps?

Andrew Fisher: 41:54 Yeah, LinkedIn page. Yeah. You can send me an email if you want. andrew_fisher@sunsuper.com.au.

Fraser Jack: 42:00 Fantastic. All right. Thank you very much.

Andrew Fisher: 42:00 No worries, thank you.

Fraser Jack: 42:04 If you haven’t already, I’d love you to subscribe to the podcast on your podcast platform of choice. And to continue the conversation, head over to our social media channels. We’ll catch you next time.


Disclaimer: This document is a transcription obtained through a third party. There is no claim to accuracy on the content provided in this document, and divergence from the audio file are to be expected. As a transcription, this is not a legal document in itself, and should not be considered binding to advice intelligence, but merely a convenience for reference.