Super funds and investment managers are facing up to the new reality of a deepening talent shortage as border controls continue to stem the flow of skilled migrants and international students.
Frontier chief executive Andrew Polson says he is surprised how much tighter the investment talent market has become in the last six months - particularly for junior staff.
Like most investment companies, Frontier has historically benefited from skilled migration and from international students who have provided diverse and valuable talent.
Polson notes that as superannuation funds grow larger, they continue to demand more investment talent and appear to be targeting valuable junior staff, which is further tightening the market.
The tight market in Australia looks set to persist for a little while given the dominance of large, fast-growing super funds and the challenge of closed international and domestic borders.
The Frontier chief concedes that it's difficult for funds to keep up in a tough employment market that is rapidly shifting as the gap widens between the big institutions and their smaller peers. "Large funds that are continuing to rapidly grow their internal capabilities while borders are closed, are accentuating the challenge for all players," he says.
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"AussieSuper, Aware Super, and QSuper/Sunsuper are massive institutions, with Aussie Super expected to manage up to $500 billion in time.
"The sheer size of these funds is fuelling demand for skills that are very different from smaller funds."
Super funds on a drive to hire specialists
Polson says recent hires by the largest super funds reflect greater specialisation with staff hired from a variety of backgrounds, including from fund managers and other financial services players.
Over the next few years, he adds, the largest funds will have to work very hard to simply deal with their growth. Aside from traditional investment roles, Polson expects to see greater demand for risk specialists, private market specialists, product specialists, and investment operations experts.
"Although mid-sized super funds are bringing investment management in-house, it's not to the same degree, and striking that balance will be critical in terms of finding the right talent set for them," he argues.
"It may be very challenging for them to attract and retain the right talent in the pursuit of their internalisation plans right now. As a result, partnering more with external managers and investment consultants remains key."
While working with its smaller and medium-sized clients in more traditional ways, Frontier has had to continue to adjust its model to keep up with the needs of its larger clients whose investment teams tend to seek more and more direct contact with specialists.
Consequently, the consultant continues to bolster the ranks of specialists in its own research teams.
"The research skillsets become more and more specialised, deeper and narrower. As we train up our staff we rotate people so they spend time in those deeper, narrower teams," Polson says.
"Equally, we are finding that larger clients are seeking more direct access to our specialists, which is an interesting challenge for our model. That said, it provides our more junior staff with a fantastic experience set as they develop their skills and either choose a narrow path or a more generalist path. This training is difficult to obtain in a fund of any size, particularly the largest funds where teams and roles are becoming highly specialised."
Ultimately, that becomes a real choice for peoples' career paths in time.
"If you go to a shop that puts you in a narrower role, your world becomes much more limited so unless you are an absolute specialist, it's better to have more diversity and more breadth of experience in your early career."
Polson points out that many senior investors leading multi-asset investment teams across the industry today have spent at least a part of their career working at an investment consultancy. "The experience they gained which is most valuable to the industry is their ability to work across the whole portfolio. That experience is more difficult to achieve in highly specialised teams."
Trustee strategies on capital immature
While Polson's comments are mostly directed at young investment talent, he argues that breadth of experience is critical for all in the industry - from advisers to trustees - to ensure the best possible results for super fund members.
From where he sits, trustee boards need to wake up to the evolving needs of these highly complex mega-funds.
Specifically, the says, the combination of the sheer size and growth of the largest funds - as well as the breadth of disciplines and markets they will operate across - presents big challenges for a funds' governance arrangements.
"The governance framework for super trustees will need to mature as they work to oversee large, internal, multi-disciplinary teams across multiple markets.
"Being able to effectively oversee the operations of a large financial services institution requires a substantial skill set at the director/trustee level, and the largest super funds are really still closer to the beginning of that journey than the end."
For a start, he points out that strategies to determine how much capital super funds need to hold to manage operational complexity remain immature, particularly where member money rather than shareholder money is required to support the activities of a fund.
This challenge will be exacerbated in a numerical sense by the sheer scale of the largest funds, Polson goes on to say.
In his book, managing this challenge will require strong regulatory engagement, board/trustee oversight risk, and management skills which are generally underappreciated at present.
"For instance, when looking at the relatively regular operational risk issues that occur at large banks or insurers, where shareholders effectively incur the cost, the dollar amounts can be very large.
"This can simply be a result of the scale of the institution. While this can be palatable for the regulator when looking at the implications for shareholders, the challenge is going to be quite different when considering members' money.
"To be honest, it is not a well-developed framework at all."