What the super fund whisperer told 125 fund managers

Newfield says that in real estate, for example, Frontier is interested in needs-based ideas in areas such as healthcare and build-to-rent, and less excited about office property and retail property.

But it also favours global opportunities over local ones, because it has strong coverage of local players already. In infrastructure, Frontier is keen on renewables, battery storage and digital infrastructure, but its strong existing coverage of global listed infrastructure means there’s less interest there.

Frontier told the fund managers its clients are focused on three big themes.

On climate change, it wants managers to dig deeper into the risks that might be lurking in their portfolios.

On the higher interest rate environment, it wants managers to think about whether what worked for them will be optimal for the future.

And on geopolitics, Frontier is encouraging managers to think about risks, exposure and options under various scenarios. Australian super funds might not have huge amounts of direct exposure to China, for example, but the increasing level of foreign assets in their portfolios could create indirect exposures worth considering.

There are some interesting shifts in individual asset classes.

In equities, Frontier says clients are most interested in climate-aligned opportunities, including impact investing, as well as what it calls opportunistic strategies: global small caps, pre-IPO investments and global activist strategies. But clients are less interested in regional and single country strategies (outside of Australia) and long-short strategies, due to high fees.

In defensive assets and private markets, Frontier’s clients are most interested in direct lending through global private debt strategies, private equity co-investments, and more spicy credit opportunities such as asset-based lending, opportunistic credit and distressed debt. But Frontier is cooler on Australian direct lending and private debt, plus syndicated bank loans.

In alternatives, insurance-linked securities are in, as are macro strategies and alternative risk premia strategies. But multi asset, merger arbitrage and risk parity strategies are out.

Newfield says another key message for managers is around unlisted valuations, which has been high on the agenda of super funds for much of the last 12 months. Frontier will keep pushing on this, stressing the need for fund managers to improve their systems, processes and governance, particularly in a market that is moving quickly.

Newfield believes this message has really started to resonate with fund managers in the last three or four months, “but it’s still got a way to run”.

For a bit of fun, Frontier surveys fund managers and its own staff on the outlook for super fund and asset class returns.

In 2022-23, fundies were too pessimistic, predicting the average balanced fund would produce a return between 0.1 per cent and 5 per cent, below both the 5.1 per cent to 10 per cent predicted by Frontier’s staff. The actual return was 9.05 per cent.

The majority in both groups see returns coming in between 5.1 per cent to 10 per cent in the 2024 financial year. But while the majority of fund managers believe the top asset class will be alternative debt (read: private credit), the majority of Frontier staff see unlisted infrastructure as the big winner.