Kristian Fok: The entrepreneurial CIO

By Elizabeth Fry

Investment chiefs must be entrepreneurial and prepare for business leadership in a rapidly changing and intensely complex environment, says Kristian Fok.

In the past, CIOs were technicians whose job was assessing investments and allocating capital.

Now, he says, the top investment heads are running businesses, managing many more people, tackling competition, confronting a much higher level of regulatory and public scrutiny, and dealing with the higher expectations of responsible investing.

"Every decision we make in terms of allocating capital has an impact, both positive and potentially negative, so we need to embrace that complexity and formulate a clearly articulated response about the decisions we make and what is driving outcomes," Fok explains.

"Our members expect us not just to generate strong returns but to also use our governance oversight in the right way."

In short, there is a lot going on.

The $68 billion building and construction industry fund is in pole position to benefit from the industry shake-up.

Cbus is in the process of bedding down a merger with Media Super and embarking on merger discussions with EISS Super - with more mergers on the horizon as Cbus continues its march toward being a $150 billion fund.

"The investment team has been planning around not just current but also future mergers, and a number of activities have been worked on in the past 12 months to set us up for this," he says.

These include delivering new investment choice options, investing heavily in technology and data, lifting resourcing, and bringing in expertise to facilitate the efficient transitioning of the investments of future merger partners into the fund.

Building the right team

Central to Fok's strategy for the enlarged super fund is building an entrepreneurial team to adapt and exploit an unpredictable environment.

This means adding more skills.

Fok is not just managing people who can identify top investments and run a portfolio.

"I need people who are not only great investors but who understand the competitive investment environment that we are facing," he adds.

The investment chief has brought data and technology specialists, lawyers, tax experts, and investment implementation people into the investment team since they are critical to translating opportunities into the portfolio.

"These functions must work closely together - they are all part of an ecosystem that provides a competitive advantage."

A bigger ecosystem allows Fok to draw on broader experience and insights and help the team make better decisions.

"It's all those people working together that create the investing edge. For instance, demonstrating that you have a strong governance process and being able to execute deals efficiently becomes part of the investment team's value proposition."

Here, Fok is talking about taking a total portfolio approach. Essentially, this is a joined-up investment process that combines top-down allocation functions with bottom-up insights and opportunities.

The investment team is encouraged to think outside of their asset class specialisations.

The joined-up approach

Total portfolio management has allowed Cbus to leverage valuable insights that help the fund achieve its investment goal.

These are especially significant when they relate to the broader structural themes, such as the massive disruption from technology and climate change responses in the global economy.

Fok says that engaging across sector teams, sharing ideas and insights, looking for broader opportunities - and even inviting outsiders in - is a logical next step.

"There is huge value in bringing together diverse teams, but you have to create a framework where people who think differently can flourish - not just for the loudest people with bags of confidence to dominate, but for everyone," he argues.

"At the end of the day, we are here to generate outcomes for members, so sharing ideas can't be just a talkfest - options need to be narrowed down, agreed upon, and the team has to get behind outcomes."

All this requires dedication and investment in developing people and the way they work with each other to enhance team outcomes.

However, building an investment team that serves one purpose is not easy.

Under a traditional investment framework, some analysts and portfolio managers have difficulties with a total portfolio approach since it can force them to make investment decisions that do not suit their portfolio personally.

"While admittedly, returns are generated by a small group of people, these trades and deals have to be executed effectively," he says

There are no superstars here. We are about creating the right environment where teams are encouraged to think about the total portfolio. And you need spare capacity in the teams to make it happen."

"If you hire people for their specialised skills and only resource their team to do their core job, it's difficult to get them to engage elsewhere."

Cbus is developing its next five-year investment strategy business plan, which is likely to see another increase in the size of the team to support its total portfolio and innovative approach to investing.

"That mindset means you are prepared to sacrifice something today in terms of the cost of extra staff and technology investment to allow the team to identify the opportunities that will have value tomorrow."

"Recognising that we don't have unlimited resources, you do have to be very deliberate about the areas that you resource up so that you have a reasonable degree of confidence about what will drive future value.

"That's why the five-year investment strategy business planning process is critically important."

Fok believes the total portfolio approach will continue to influence the fund as it internalises more and more of its investment management capabilities.

"These processes lead to greater insights for our asset allocation team, for efficient liquidity and risk management, and for incorporating our responsible investing principles to drive long-term sustainable returns."

Bringing assets in house

Many super funds have moved to internalise investment management to save costs and improve returns.

"Compared to outsourcing to external investment managers, bringing investment management in-house gives us a significant advantage in driving scale benefit outcomes as we grow, which is why Cbus is positioning itself for more mergers."

Cbus currently manages 38 percent of its assets internally, and Fok expects to reach 50 percent over the next five years.

Investment costs have dropped by 41 percent over the past four years since Cbus began the process of managing investments in-house, with a cumulative benefit of $410 million for its members.

Over the last financial year, the fund has saved members $170 million in investment costs, with investment fees are now sitting at 51 basis points, a 9.2 percent drop from the previous year.

The fund's MySuper investment option returned 19.34 percent for the 2021 financial year, a record year for the industry fund.