Chapter 1: Who is Paul Schroder and what is AustralianSuper?
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G'day, Alan Collar here, and this week on That's Business, the man with a few million futures in his hands, the CEO of Australian Super, Paul Schroder. It's Australia's biggest superannuation fund, with more than $400 billion under management. And a note from me here, if you think a superannuation is boring, And the people who run it must be boring too. Well, you'd be wrong.
Paul Schroeder is not boring, both from the lens of the major business he runs and the world he sees around him.
He's got plenty to say on the state of the Australian economy and its direction, the not-so-minor front of geopolitics and how it plays with business and investment, including Aussuper's efforts to invest internationally, as well as the super system itself, which is a topic with plenty of politics around it.
And perhaps most importantly and most passionately for Paul, the three big things facing Australia are productivity, inequality and housing. And he reckons housing is the biggest one of all on that list, that it's a major problem. But don't worry, I challenge him on a few of these world views.
You'll have to keep listening to find out which of them and ask him to unpack what the role of superannuation and AusSuper in particular might have to help solve the housing problems that he himself identifies. Here's Paul Schroeder, the CEO of Australian Super. Well, g'day, Paul Schroeder. Thanks for joining us on That's Business. It's a pleasure to be here.
Thank you.
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Chapter 2: What are the major challenges facing the Australian economy?
One of them is that compound interest and staying invested is absolutely essential. And the second is that a properly globally diversified portfolio will always put you in better stead than a concentrated portfolio, always. And so if Australia is only 2% of global markets, it makes very strong and good sense for us to be a global investor for domestic beneficiaries.
Now, it is a reasonable question to say when the world's in some strife, does that change your mind about that? Well, then you've got to say where are the most reliable earnings and where are the best companies in the world? And the most reliable earnings and the best companies in the world are in the United States. Now, some people would say- Is that still the case?
Do you reckon that's still the case? Oh, absolutely still the case, but it's absolutely still, categorically still the case. But importantly, some people talk about de-risking a bit in the US context, because of geopolitical changes, the administration and various other things. But most of those people who are talking about de-risking the US are talking about coming back from a portfolio.
All those US-based fund managers and many of your listeners who are invested with US-based managers might be 80% or 90% exposed to the US. We're 35%. So from where Australian super members are, they can absolutely afford to, and they'd be mad not to, increase their exposures to the world's greatest companies and strongest earnings in the best domestic economy there is.
But things have changed in the US. I mean, you've got, what, something like $140, $150 billion in the US specifically. And things have changed in the past 12 months since Donald Trump was elected, right? So, I mean, has that changed your thinking about America at all?
Well, we have. We spend a lot of time engaging with the new administration and the old administration and understanding what's going on to the best of our ability. And by the way, the Australian government's been really good like that. Kevin Rudd and Penny Wong and Heather Ridout and others have been really good at making sure doors are open and thoughtful.
How do you engage with them? What do you do?
Ah, well, thoughtfully and alert to idiosyncratic risk.
Yeah, but at what level? I mean, who do you talk to?
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Chapter 3: How does housing impact the Australian economy?
So the main thing is there's about – there's $150 trillion worth of global debt that you can invest in. There's $140 trillion worth of global equities that you can invest in. And there's about $15 trillion – this is all in US dollars – of private markets.
And so you then have to think about, well, how do I get the best exposure for the members of Australian Super, Tatiana, who's got a balance of $53,000? How do I get her the best exposure so she can invest like a billionaire in the United States or in the UK? We get tremendous...
Every government of every colour and every persuasion wants to engage with us because we're very important investors and we're long-term investors and we take an active interest in creating wealth.
So as your funds grow from here, do you think you'll keep the same allocations? Are you looking more towards certain markets than others? I'm thinking particularly of emerging markets or China and so on.
That's a really important question. very important perspective.
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Chapter 4: What is the role of superannuation in addressing housing issues?
The connection between Australia and Asia is one of our most tremendous advantages. And I think there's 170 people in Asia for every person in Australia. So you've got tremendous opportunity across Asia. We don't really invest by geography, by the way, Alan, in case I've implied that. We don't. We invest by asset class and then we think about securities, often in themes and often in industries.
But we don't say this country or not that country. Generally speaking, we try to get a fairly representative exposure across countries. across the globe. But Asia does represent enormous opportunities and significant opportunities for growth. But as you fully know, these things happen in cycles and in waves. But the main thing is, will Asia be a much more important driver of the global economy?
Yes. Is China the most important global partner for Australia? Categorically. That's why we have three people in In Beijing, by the way, we have three macroeconomists in our Beijing office because that's a fundamental driver of future growth. Although if you wanted to talk about that, you know, they've got some demographic challenges and some capital allocation challenges as well.
It makes sense for us to think about our time zone and it's why we run in three hubs. So if you're an Australian super member, you've got a hub in this zone where we've got offices in Australia and in Beijing.
Chapter 5: How does Paul Schroder approach uncertainty and volatility in investments?
You've got a hub in Europe because we've got a great big office in London in that time zone and we've got a hub in New York. So that's the way we're thinking about it, three kind of hubs to be able to invest as a global investor for domestic beneficiaries so that – You know, I met a guy called Percy. He's one of 74 Percys in the fund.
He's got to worry about his job and his salary, but I also need to make sure that he's got money, right? He's got to worry about his job and his salary. We've got to make sure he's got a decent balance as well, which gives him, makes sure that not all his eggs are in the one basket. It means he's got access to capital markets as well as the labour market. 74 Percys, wow. 74 Percys.
A few more if you include Percivals, but there's 74 Percys. And just to talk about the point you made at the start, I introduced myself to one of these Percys and I said, oh, you made this great speech. And I said, I'm Paul Schrader. He said, I know who you are because I'm 67 years old and I'm retiring in three weeks and you've got all my money. It doesn't get sharper than that, Alan.
No, indeed. Okay, all right, let's talk about Australia now. Obviously, you've still got a lot of money. You're probably, I mean, according to what you're saying, Australia's 2% of the world and you've got 26% of your funds in Australia. You're way overweight Australia, right? I mean, so you've got more in Australia than really you should have.
But anyway, I mean, how do you feel about Australia?
I'd like to challenge that, Alan. You're right. We are overweight Australia.
No, I mean technically.
I mean in a technical sense, but we've got bigger responsibilities than just the technical.
Yeah. No, sure, I get it. So how are you feeling about Australia?
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Chapter 6: What is the significance of geopolitics in investment decisions?
In fact, I would say this.
Well, okay, I'm going to get on to what you can do about it in a minute.
Yeah, sure, you should do that. But look, I think it's more central than that. You know how they say in casinos the house always wins? I would say that in the financial sector, in the Australian economy, the house always wins. And the reason the house always wins is that housing companies prices and housing valuations underpin the entire banking system.
So there's $12 trillion worth of housing in Australia. About a third of it's got a mortgage. Every one of those mortgages is underpinned by what a house is worth. So even when people get together and say, we want to improve housing affordability and we want to reduce the price of housing, it's actually nonsense. Because APRA...
the regulatory environment, mortgage system, banking, the entire, every piece of journalism is underpinned by advertising that's dependent. And a ton of your money. Correct. I'm not pointing the fingers at everybody. I'm just saying the entire construct of the Australian economy is embedded in housing, mortgage, book.
And so if you're going to deal with it, you can't just say, because everybody says, and it's right, land release, permitting, cheaper manufactured housing, get out of the way, get local councils out of the way, build, build. But I say, build, baby, build, right? You have to fundamentally arc up a supply. But John Howard said, nobody wants their house to drop in value.
I'm saying the entire Australian economy is built on housing as its crux. And the best example is this, a capital allocation sense. The US economy is worth $33 trillion or thereabouts. And there's about $55 trillion worth of housing. So there's 30 thereabouts GDP, 31.4 to be precise, of $55 trillion worth of housing. In Australia, our GDP is $2.72 trillion and housing's worth 12.
The whole show, this whole show is built on housing. So if we're going to be serious about it, you've got to go, the whole show is built on housing. The house is always going to win unless we say we're going to build the show on something else.
Yeah, well, so that's right. So the thing is that to make housing more affordable, the price has to either come down or not change for a while, right? Correct. I mean, it's kind of, in a sense, the cat's out of the bag, right?
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