How Australia’s State Super uses data to drive investment calls
Algorithms and cloud computing are key elements of investment decisions at State Super, one of Australia’s largest superannuation funds.
According to its chief investment officer Charles Wu, the fund has worked on how to cut through the “noise” of the vast amounts of data, and at the same time make better investment calls not only based on subjective views of people involved.
“The idea of data-led investment is to remove biases and emotions from the background of the investment professionals to make objective decisions,” Wu said on Wednesday (May 25) at AsianInvestor’s virtual Asian Investment Summit.
Wu was appointed CIO in December 2020 and leads State Super's internal Investment team. With a degree in computer engineering, he has introduced machine learning and artificial intelligence to the superannuation fund’s investment policies and objectives.
NO CRISIS SCENARIO EXPECTED
To show the value of data, he presented an example where an algorithm was applied to compare current global market data points with data over the last 20 years to look for periods with similar trends or patterns of volatility.
"We have found that today looks very similar to [the equity markets dip in] 2018 and the forward projection there will be relevant in the coming six months. This then serves as an additional input into our decision-making process,” he explained.
He elaborated that data did not suggest that the global market was in a similar state as the global financial crisis, due to only the equity market seeing a drawdown while the bond market is heading upwards. Similarly, the market does not look like the dotcom bubble due to differences in the commodities market, Wu’s data comparison showed.
“Subparts of the market might look like these previous periods, but the market as a whole is not. As an asset owner and investor, taking the whole world into consideration is incredibly important,” Wu said.
LEARNING FROM TRIAL AND ERROR
Wu said that the key to setting up the State Super data capabilities was a mix of talented coders and investment professionals. The fund initiated the setup five years ago and works on enhancing it every day, he said.
The next step was to then to work relentlessly on assessing the data the right way through trial and error in the beginning and then learning from it.
“Then we started to introduce governance, compliance, and oversight bodies over the last two years. It was probably triggered by Covid, because with everything moving online, we started to ensure that the governance and procedures are in place within that framework,” Wu said.
State Super is the Trustee of the State Authorities Superannuation Scheme (SASS), State Superannuation Scheme (SSS), and Police Superannuation Scheme (PSS) in the Australian state of New South Wales.
The assets of all the schemes have been combined into the STC Pooled Fund. State Super is one of Australia's largest superannuation schemes with over 93,000 members and A$43 billion ($30.6 billion) in assets as of 30 June 2021.
Japan’s Government Pension Investment Fund (GPIF) has also made pioneering steps in applying artificial intelligence to its portfolio, the world’s largest pension fund with ¥199.25 trillion ($1.57 trillion) of assets under management as of December 31 2021.