Impact Profile – Tim Macready

Tim Macready

Chief Investment Officer
Christian Super

For a number of years, Christian Super has been an impact investing leader in the institutional investment space. Much of this work has been lead by the organisation’s Chief Investment Officer, Tim Macready, who talks to Impact Investing Australia about the superannuation fund’s experience with impact investing and aspirations to grow its impact investment portfolio.


What percentage of Christian Super’s investment portfolio is currently allocated to impact investments? Do you have aspirations for increasing this allocation?
We currently have 9% of our overall funds in impact investments, with a further 1% in commitments to specific funds that haven’t yet been fully drawn down. Once we hit around 10% or 12% of our total assets in impact investments, we’ll sit back and ask ourselves whether we can push that number higher.

Personally, I’d love to be targeting around 20%, but there’s some market problems that we’d need to solve before we got to that kind of a figure.The market really needs to mature more in a number of ways. One of the big barriers to us allocating more capital is liquidity. As more investors access the impact investment market we expect this to change, but it will take time to build up enough liquidity in some of these impact investments. A second issue is structure. At the moment almost every deal has a unique structure, and this takes time to analyse and to understand. If we’re going to keep deploying capital we probably want to see a group of standard structures in place – whether that’s for Social Impact Bonds, or Funds, or Loans – so that we can look at the implementation aspects and understand them immediately.

How have your impact investments performed financially versus traditional investments? Where do impact investments sit within your overall investment portfolio (ie. typically one asset class or spread across multiple classes)?
Some of our investments have delivered below our expectations and others have exceeded them.

Overall, we’ve been pleased with the performance of our impact investments to date and also pleased with the extent to which their performance isn’t correlated to other parts of our portfolio.Our earliest impact deals were done in 2008-2009 but we really ramped things up in 2013, so we’re planning on really digging into not just the performance metrics but the correlation figures and risk measures as well over the next couple of years, as we build up a good history.

Our impact investments are almost entirely in our Alternative Assets portfolios – split into Growth and Defensive Assets. There are a couple of impact investments in our fixed income portfolio, but they are the exception rather than the rule.

How do you select appropriate impact investments for Christian Super?
We have a really rigorous process. To start with, we’re working from a very broad field. We aren’t targeting an impact portfolio that focusses on particular geographies or sectors, so any impact investment that’s looking at market rate returns is something we’ll consider.

At the moment, we would probably get over 100 potential deals across our desk each year. We run these through a number of filters – market rate return, extent of overlap with the existing portfolio, initial views on the viability of the business case – those sorts of things. If they pass those filters, we do a bit of work to try and understand the strategy and express it clearly. Out of those deals, there are probably 12-15 each year that would make it to the starting line – deals that we want to take a more serious look at.

On a quarterly basis we sit down and we look at the deal pipeline we have, and select the deals we think are best for the portfolio, where we want to our efforts. There’s a lot of steps along the way. The whole investment team is involved, but there are specific analysts who do the investment due diligence and operational due diligence components, and of course, as a superannuation fund, compliance signoffs. We’re trying to do 3-5 deals a year.

What are some of the social or environmental impacts that have been made possible through Christian Super’s investments?
We’re really proud of the difference our impact portfolio is making. I could pick any number of examples but I’ll just focus on a couple.

One of our most exciting deals I think it a loan that we made to a provider of student loans in Latin America. Many bright students from lower and middle class families aren’t able to afford to go to the best universities because they can’t afford the fees, and options for finance are limited unless you already have money. The InterAmerican Development Bank arranged a Syndicated Loan, which we took part in, to an organisation that is providing these loans. Over the next 4 years, we expect that our loan alone (not counting the other participants) will enable over 1,000 low and middle income students to get a university education.

The other is a little closer to home. The Foresters Community Finance Fund was one that we seed funded back in 2011, with government capital forming the rest of the Fund. That Fund has made loans to 22 different community sector organisations, and when you talk to some of those borrowers about the difference that funding has made to their ability to deliver services, you see the real difference that investment has made in helping those organisations to reduce poverty, provide housing and deliver vocational education.

What motivates Christian Super to engage in impact investing and how do your members respond to your approach to investing?
Our members share a common value and belief set. They believe in the value and dignity of human life and the importance of creation stewardship, and they want us to live out those values in the way we invest. Our members regularly tell us that the overall responsible investment approach that we take is the reason why they have chosen to join or stay with Christian Super.

The impact investment portfolio is one of a number of ways we express Christian values in the portfolio, but it’s the one that consistently resonates with our members. They want their money to be doing good while it’s building for their retirement.Our faith is the real motivator for what we do and the way we do it. The Bible carries a great message of hope, but it also asks us to care about the way that we treat those in society who are poor, powerless or disadvantaged. If we can live out those values with the way we invest, why wouldn’t we?

The ‘sole purpose test’ for trustees is often cited as a barrier for superannuation funds making impact investments. APRA’s response to the Financial Systems Inquiry is the first time a regulator has gone on the record to clarify expectations around trustee duty in support of impact investment. Do you think this has been helpful, and what message would you give to other superannuation funds around fiduciary duty and impact investing?
I think that APRA’s response has been helpful, and it’s entirely consistent with what we’ve been suggesting for years.

Superannuation trustees have always had a wide remit to invest, provided that they remain focussed on delivering retirement outcomes for their members. That’s what we see as the essence of the sole purpose test. Ultimately, our members trust us with their retirement savings so that they can have a purposeful and satisfying retirement. The fact that we get them to that retirement by making public equity investments, or infrastructure investments, or impact investments – it’s all a means to the goal of retirement outcomes.

There is a part of the market that is clearly off limits for fiduciary investors, and we don’t have a problem with that. There’s a role for philanthropy. There’s a role for concessionary capital. Super Funds shouldn’t and can’t play those roles. But what we believe we have found in impact investing is asset class that’s offering opportunities with appropriate risk-adjusted returns that are strongly diversified from the rest of our portfolio. That’s a place we want to be.

I think a lot of the debate is not around that concept but around how much evidence you need, as a fiduciary, to prove that the risk-adjusted returns are right. We’ve done a lot of work internally and we’re satisfied that the impact investments we’ve made are a great addition to our diversified portfolio; we think over time the evidence is going to make that clearer and clearer, and more funds will follow suit.

We are starting to see more signs of active engagement from superannuation funds with the recent launch of the SVA Fund in collaboration with HESTA. What are some of the emerging opportunities you are seeing for impact investing in Australia and abroad?
At any given time we’ve got probably 20 deals that we’re looking at. Some of the ideas that are around are really exciting. We see more opportunities for connecting different types of capital to create really good outcomes for everyone. We’re seeing philanthropic or concessionary capital linking up with fiduciary capital and really scaling up the impact that’s had. We’re seeing a much greater variety of opportunities. Seven years ago almost everything was about financial inclusion. Now, we’re seeing great ideas in education, in health, in aged care – all sorts of areas.

But we’re also seeing a willingness to think big about the big problems that society faces. Instead of trying to set up small funds to prove that the concept works, we’re now starting to talk about funds in the hundreds of millions of dollars. At that scale, it’s not unrealistic to dream about eradicating or making a very significant dent in some social problems.


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