150918 from coal mines to collins st afr

anywhere from a Queensland coal mine toan office on Collins Street. The fund has adistinct bias to growth assets, a reflection ofits comparatively young workforce.

It also offers enhanced insurance options,including a partial disability or ill-healthbenefit, which acknowledges the higher-riskvocations of many resources workers.

Members can choose to invest in individualasset classes or one of its four pre-mixedoptions. It does not offer a "balanced" optionand 65 per cent of the fund is invested in thedefault growth strategy.

The tilt towards growth assets goes someway to explain the strong performance,but it also creates a direct link between thefund and the average self-managed superfund because SMSFs are typically growthorientated and contain plenty of shares.

Another similarity between Rio's fundand your garden-variety SMSF is that itsexposure to the sharemarket is 100 percent active. Rio pays fund managers to lookafter both its local and international equityexposures, which runs counter to the trendof institutions swapping active for lower-cost

:

SMART PEOPLE

From coalmines toCollins Street

The strategies employed by Rio Tinto's top-performing staff superannuation fund canand should be explored by self-managedsuper fund members, writes James Frost.

It's an open secret within thesuperannuation industry that the bestperforming funds are run by insiders.Over the past 10 years the superfunds run by and for the employees

of Goldman Sachs, the Reserve Bank ofAustralia and Commonwealth Bank ofAustralia can be found among the top fiveperforming funds of almost any given year,according to data collected by the AustralianPrudential Regulation Authority.

But in 2013-14, a fund run by a companynot normally associated with high financebroke ranks and stormed home with a13.8 per cent return - muscling its way intofifth spot in the process. That fund was RioTinto's S5.3 billion staff super fund, chairedby managing director Phil Edmands.

"We like to keep things pretty simple,"Edmands says. "We are seeking consistentreturns that are a little bit better thanthe market and we hope that will lead tosignificant outperformance over time."

The 70-year-old fund has more than30,000 members who work across Rio Tinto'sAustralian operations. The fund caters toa broad mix of staff who could be working

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18 Sep 2015Australian Financial Review, Australia

Author: james frost • Section: Smart Investor • Article type : News ItemAudience : 57,243 • Page: 6 • Printed Size: 754.00cm² • Market: NationalCountry: Australia • ASR: AUD 13,184 • Words: 858 • Item ID: 467169657

Copyright Agency licensed copy (www.copyright.com.au)

index or index-enhanced strategies."We have been able to find active managers

with the expertise to add value and so wedon't have any plans to move to passiveat this point," Edmands says. Rio givesmandates to a small number of Australianequity managers including Balanced EquityManagement, Fidelity, Paradice InvestmentManagement, Integrity Asset Managementand Renaissance Asset Management.

The fund has close to $500 millioninvested with Andrew Sisson's BalancedEquity Management. BEM is well knownfor two things: its comparatively small

"Fund managers are people too; they can'tbe perfect every day of every month of everyyear. We look at things over the long termand understand that they need some leeway.We are not just flipping between managers."

Perhaps the best measurement of thefund's success is its high take-up amongRio staff. About 21,000 staff membersfrom a pool of 23,000 have joined, with anadditional 10,000 former employees andspouses also choosing the fund.

"In terms of the feedback we get frommembers, we are highly regarded and theylike what we do," Edmands says.

"When I started working for Rio Tinto nineyears ago, I got some professional adviceabout whether I should join the fund. They[took a] good look at it and told me that Iwouldn't do better anywhere else. I haven'tlooked back since." H

management fee and its ability toconsistently beat the index without shootingthe lights out. This philosophy dovetailsneatly with the fund's aims.

Fund managers are selected by theinvestment committee in conjunction withasset consultants JANA, a subsidiary ofNational Australia Bank. The performancesand processes of fund managers on the rosterare then reviewed regularly. "We certainlykeep close tabs on what they are doing. Ourinternal team and JANA are both very handson in this respect," Edmands says.

"If a manager had a process that weliked and that changed we would seek toreview that. If there were staff changes thatconcerned us then we would look at it aswell. Sometimes you come across a managerwho is unequivocally better."

A change in investment process at theglobal investment firm GMO, founded byrespected investor Jeremy Grantham, isbelieved to have led Rio Tinto to dumpthe manager. GMO ran a mandate worth$164 million for the fund during 2014-15.

Members of Rio Tinto's staff super fundwill be informed of the change in managerswhen its annual report is distributed in

: coming weeks. Edmands says Rio takesa long-term view and it seeks to avoidswitching managers if possible.

WE HAVE BEEN ABLE TOFIND ACTIVE MANAGERS

WITH THE EXPERTISE TO ADDVALUE AND SO WE DON'T HAVEANY PLANS TO MOVETO PASSIVE.

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PROFILE

Phil Edmandse: Managing

director, Rio TintoAustraliaOther roles: Chairmanof Rio Tinto StaffSuperannuation Fund

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150918 from coal mines to collins st afr

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