Cutting edge data capabilities are critical for super funds who are charged with improving member outcomes by calibrating risk and driving net returns.
This is the view of Stephen Reilly, chief operating officer at HESTA and a former Morgan Stanley vice president, expressed at the ASI conference on Tuesday.
During the session, Reilly stressed the importance of building flexibility into the data system.
But he argued that means going against the traditional intuition about precision where everything revolves around one absolute source of truth.
“What becomes important is how we get the right information to the right person, in the right form at the right time. This game is changing every day, every week and the ability to be flexible comes down to how we are structuring our data so we can make better decisions.”
Reilly pointed to the COVID-19 pandemic as a ‘fantastic’ example of why funds needed to be flexible enough to pivot quickly.
He told delegates that HESTA paid out around $2 billion under the government’s early release scheme and that set in train a series of other knock-on effects.
“Early release had a ripple effect on liquidity which, in turn, affected how we managed the funds. That had a ripple effect on the valuation process – it is all connected,” he said. “What is the exposure, what is the information that people need to make decisions on how to handle liquidity requirements?”
While the $52 billion asset owner could easily meet the $1.4 billion early release payments, the ripple effect highlighted the importance of getting the data right in order to make holistic decisions and maintain strong returns in a volatile time, Reilly explained.
The flexibility theme jibes with Stuart Bain, Investment Operations Manager at New Zealand’s Accident Compensation Corporation.
“Flexibility is important but the relationship between risk and flexibility can be a challenge when you are trying to reduce the risk for your client,” he said.
A key area for both executives is the investor demand for solid data on sustainability strategies.
Aside from data on efforts to improve health and safety, the ACC also reports on carbon.
Bain said the corporation’s exposure to carbon has decreased by 19 per cent over the past ten years but told delegates it was “quite challenging” but “critical “to validate those figures.
While ACC has invested in several technology companies and the carbon decrease is happening by default “we need to make sure we are transparent and visible so it is critical to have that data.
His comments come just as New Zealand has made climate risk reporting mandatory for banks, asset managers and insurers under new regulation announced on Tuesday. This includes the ACC and the NZ Super Fund.
Reilly told delegates Hesta was in the same boat as the ACC. “Good ESG data is important to our members.”
“We have looked at a lot of returns data that suggests that investing responsibly is not incompatible with maximising returns. But then we have to start following the threads – checking for modern slavery violations, checking the carbon measures, getting involved annual general meetings, getting involved in conversations”
Reilly said HESTA engages publicly with corporates and data is key to engaging meaningfully. He told the panel that data is a differentiator for the asset owner in terms of attracting top talent.
According to Bain, data must be presented in a way members can understand it. In his view, members are becoming more financially literate and want data that helps them decide where to invest.
Vicki Martyn, who runs data services for AustralianSuper, closed the sessions by saying that initially, the fund had been very focused on learning from global peers. “ We thought because the Canadians and the Dutch had done this for years, it would help us fast-track data management. However, we discovered that all funds are different and all funds are challenged.”