FINC3600 Finance in Practice S1 2023
Project 2: Portfolio Management Brief
April 2023
Portfolio
Management
Process
Investment
Goals &
Objectives
Portfolio
Strategy & Asset
Allocation
Investment
Selection &
Implementation
Portfolio Review
© 2023 The University of Sydney Business School 2
Project Learning Objectives
By completing this project you will:
▪ Apply portfolio construction concepts and techniques from past finance courses in a realistic
setting
▪ Communicate complex financial reasoning to a diverse audience, in writing and in person
▪ Gain insight into how investment management teams collaborate effectively, make decisions,
under uncertainty, and communicate key recommendations
▪ Synthesise portfolio management theory and analysis of market data into portfolio
management guidance
▪ Understand and explain model applications, assumptions, and limitations
▪ Experience operating in an investment governance framework.
Project Learning Activities
By completing this project, you will:
▪ Integrate portfolio management theory with portfolio management practice
▪ Develop and peer review financial models
▪ Develop and peer review executive briefing reports
▪ Develop and peer review board-level written presentations
▪ Present and communicate in senior executive and board (committee) settings.
Unit Learning Objectives
▪ LO1. demonstrate and integrate finance knowledge, concepts, and principles in a range of
business contexts.
▪ LO2. identify, analyse, and solve business challenges reaching conclusions using fundamental
concepts, principles and knowledge from the finance arena.
▪ LO3. communicate effectively and professionally using a range of communication modes in
business contexts.
▪ LO4. recognise the need for, locate, evaluate and use information effectively.
▪ LO5. use different strategies to explore opportunities and construct new ideas, solutions, or
products.
▪ LO6. evaluate issues relating to business ethics, sustainability and social responsibility in
addressing business challenges.
▪ LO7. make a positive contribution to a team-based structure.
Groups
This assignment is a group activity and requires teamwork. Groups remain the same as the ones that
were allocated during the Week 3 workshop.
© 2023 The University of Sydney Business School 3
Task
Abercrombie Super Pty Ltd (the ‘Fund’) is a registrable superannuation entity (RSE) licensee and is
regulated by APRA.1
The Board of Abercrombie Super has delegated responsibility for recommendations around
investment policy to the Investment Committee (IC). The central role of the IC is to assist the Board in
its implementation of the Fund’s Investment Governance Framework (IGF). This includes determining
the strategic asset allocation and investment objectives for the Fund’s products, monitoring the Fund’s
investments, and consideration of proposed product changes. All IC decisions must comply with the
Board-approved IGF, although the IC can recommend changes to IGF to the Board. The IC is made up
the Fund’s Chair and several Board directors (not all Board directors are in the IC).
The Fund’s Chief Investment Officer (CIO) and Internal Investment Management Team (IIMT) make
recommendations to the IC. The IC can endorse (or decline to endorse) recommendations, and in turn
recommend that the Board approve the endorsed recommendations.
Your group, the Asset Allocation team (AA team), is part of the broader IIMT. The AA team reports
directly to the CIO and plays a strategic role inside the Fund. The team regularly develops and delivers
strategic investment guidance to the IC. Manager selection and termination and portfolio
implementation are covered by other groups of the IIMT; however, the AA team has a solid
understanding of the issues in these areas.
For this task, the AA team’s resources include Abercrombie Super’s IGF, historical asset class data,
historical economic data, and in-house software (written in Excel). The task has no ‘solution’; however,
your recommendations should be well thought out and the AA team should be ready to explain them.
Your task has been broken down into five steps set out in the table below.
Five Steps When Assessment
1. Review the project brief, the Fund’s documents and other
information. Spend time considering and contextualising the problem
so you can contribute effectively to a ‘brain storming’ team meeting.
Your initial work and the outcomes of your team meeting will prepare
the team for Week 9 and beyond.
Week 9 Individual
2. Analyse and evaluate the areas discussed in the project brief. Week 9-10 Individual
3. Prepare a one-page written report that briefs the CIO on the specific
areas covered by the guidance.
Monday 09:00
Week 11
08/05/2023
Group
4. Prepare and submit the slides for the IC presentation, which
summarises the most important findings of your work including
recommendations for future action.
Monday 09:00
Week 12
15/05/2023
Group
5. Present a summary of the most important findings of your work,
including recommendations for future action, to the IC.
Week 12
workshop
Individual
Group
1 Abercrombie Super is a fictitious fund.
© 2023 The University of Sydney Business School 4
Task Assessment
Your task will be assessed as follows (percentages of grade for the unit).
Sub-Task
Participation CIO Briefing
Paper
Presentation
Slides
Oral
Presentation
Total
Individual 5% 10% 15%
Group 5% 7% 3% 15%
Total 5% 5% 7% 13% 30%
Participation (team contributions) is 5% per project and will be reviewed and assessed by facilitators
during project workshops using the following scale:
Contribution Outcome
Did not contribute at all (e.g., camera off during online facilitation) 0
Quiet contributor: limited interaction 1
Active contributor: contributed, but did not draw other team members into discussions 2
Team contributor: contributed and drew other team members to contribute 3
Based on the categories above you are allocated 0, 1, 2, or 3 points in the relevant meetings. These are
then summed over the relevant weeks and scaled to an overall mark out of 5 points for project
participation.
For those teams working online it is very important that you keep your video on and your
microphone live (mute only as needed). This makes it easier to engage effectively with your team
members. It also means that the facilitators are aware of your engagement and contribution. Failure
to have your camera turned on may mean that the facilitator is unable to recognize fully your
contribution to the class session.
Some things you can do to benefit your team and aid in your assessment when working with facilitators
are:
• Ensuring that you are an active contributor
• Asking insightful questions
• Encouraging participation by others
• Summing up key discussion points as appropriate
© 2023 The University of Sydney Business School 5
Task Timeline
Week (USyd Number) &
Commencement date23
Activities Updates / Assessments
8 17/4/23 Project 2 available to students.
9
24/4/23
Project 2 Workshop. Individual (participation)
10
1/5/23
Project 2 Workshop. Individual (participation)
11
8/5/23
Project 2 Workshop.
Submit CIO Briefing Report.
Individual and Group (participation and CIO
brief)
12
15/5/23
Submit presentation slides.
Present findings to board.
Individual and group (presentation and slides)
PROJECT BRIEF
Introduction
It is 1 April 2023. Your team, the Asset Allocation (AA) team, has been asked by the Chief Investment
Officer (CIO) of Abercrombie Super (the ‘Fund’) to provide strategic guidance. The recommendations
will be presented and discussed at the next Investment Committee (IC) meeting.
Scope of guidance
Your investment guidance to the IC will need to address two specific items:
1. Asset Allocation. You need to perform the Annual Review of the Asset Allocation of the Fund.
You will be focussing on the current default MySuper option, which is the Growth strategy, and
is where most of the Fund’s members are invested. You need to review the long-term strategic
asset allocation to determine whether it is suitable to meet the Fund’s MySuper investment
objective.4 In particular, you should consider whether it is desirable to modify the long-term
strategic allocation by inclusion of up to two of the following asset classes: Emerging market
equities (growth) and/or Global Government Bonds (defensive). The IC will want to know how
your assumptions drive the allocation recommendations. While they are interested in an explicit
recommendation, they are also interested in learning about ranges of outcomes and the
robustness of your recommendation to the assumptions used.
2. Lifecycle. The membership of the Fund is aging, and more members are moving towards the
retirement phase of their lives. The Fund is considering how best to help these members through
this change. The fund is considering a “default lifecycle investment strategy” (DLIS) for its
default MySuper members. The DLIS automatically changes a member’s investment option and
hence risk profile depending on their age. You need to investigate the implications of members
having different risk profiles at different ages on their ability to save for retirement. Using such
In S1 2023 most of the workshops/streams will be strictly delivered in “on campus” (CC) mode while there will
be one workshop delivered strictly in remote/online (RE) mode. For the workshop that is delivered in RE mode,
students will meet online through Zoom at the regular, scheduled times. Once formed, teams will be working in
Zoom using breakout rooms. You will be moved to your breakout room at the start of each Zoom session as
required
3 The University’s Student Wall Calendar may help you manage these dates.
4 An asset allocation financial model is available on Canvas.
© 2023 The University of Sydney Business School 6
an analysis, recommend which investment option (of the four that the fund has) the member
should default to for each age range within the default lifecycle product.5 The CIO has suggested
that examination of the effects of substantial market breaks or disruptions when a member is
nearing retirement is a key issue that the IC would like analysed. How would your recommended
DLIS be viewed by an existing typical 50-year-old member of Abercrombie’s MySuper option
compared to that of a potential new member just entering the workforce? Discuss and fully
explain.
Deliverables
The CIO has requested that your team provide three deliverables for this project:
1. CIO briefing paper – The CIO has requested that a succinct CIO briefing paper be prepared in
relation to the specific areas covered by the guidance. This is to check on progress and confirm
the nature of the guidance you are preparing for the IC. There is to be one briefing paper per
group, and it is to be no more than one page (no appendices or additional content allowed).
Use tables/charts to set out your assumptions and analysis clearly and succinctly. To be
submitted by Monday 09:00 on Week 11 (8th of May 2023).
2. Investment Committee presentation slides – You will develop a summary (in the form of
succinct slide pack) of the most important findings of your work including recommendations
for future action. The slide pack will be circulated to IC members before the presentation and
must be submitted by Monday 09:00 on Week 12 (15th of May 2023). You must use your slides
as submitted in your presentation.
3. Presentation to Investment Committee – Twenty (20) minute IC presentation including a
question-and-answer session – This presentation that will summarise and discuss the most
important findings of your work including recommendations for future action. Each team
member will need to present during your presentation and responses should be concise and
succinct. The presentation will occur in the workshop during week 12 (i.e., the 16th, 17h 18th
and 19th of May 2023 as regularly scheduled).
In addition to the above deliverables, you should retain all working papers and materials used to
prepare the guidance so that you are able to respond to any detailed queries by the CIO.
5 A Lifecycle financial model is available on Canvas.
© 2023 The University of Sydney Business School 7
Abercrombie Superannuation Fund
Abercrombie Superannuation Fund (Abercrombie) is a small APRA-regulated public institutional
profit-for-members superannuation fund that has traditionally targeted ancillary support staff of
professional service providers such as legal and accounting practices.6
Five annexures provide relevant details for Abercrombie:
▪ Annexure 1 – The Investment Committee of Abercrombie Superannuation Pty Ltd
▪ Annexure 2 – Abercrombie Superannuation Pty Ltd - Investment Governance Framework
▪ Annexure 3 – Abercrombie Member Analysis
▪ Annexure 4 – MySuper Ratings
▪ Annexure 5 – Peer MySuper Products
Regulatory Environment
Abercrombie’s performance is a concern to the board due to the consequences for members and the
implications of failing the Your Future, Your Super (YFYS) reforms which APRA introduced on 1 July
2021. The tests are designed to improve Superannuation efficiency, transparency and accountability.
Under the YFYS reforms, APRA is required to conduct an annual performance test for MySuper
products. This test measures investment performance vs peers, costs and sustainability of the fund.
The consequences for failing the test include increased regulatory supervision and members receive
communication encouraging them to move to a better performing fund. If a superannuation fund fails
a second year, they can no longer accept members contributions until the performance is resolved in
the members best interests.
The YFYS MySuper performance test for MySuper products covers:
▪ an assessment of investment performance over a 7-year time horizon as at 30 June.
▪ an assessment of administration costs and taxes charged to a representative member with a
$50,000 account balance over the previous financial year.
If the product’s combined result is -0.50% p.a. or lower than the APRA benchmark, the product fails
the performance test.
Financial Models
Two Excel financial models are available on Canvas to assist you develop your investment guidance.
Asset Allocation model
This Excel model allows you the flexibility to alter some key inputs
a. Assumptions about the future return and volatility of the various asset classes. When you
open the model, the assumptions are initially derived from historic data. You need to
consider whether that history will be an appropriate guide to the future. Be mindful when
changing assumptions – you will need strong evidence and logic to justify what you do.
6 APRA-regulated institutional fund: Any large (more than four members) superannuation fund regulated by the
Australian Prudential Regulation Authority (APRA).
© 2023 The University of Sydney Business School 8
b. The current strategic asset allocation with the possible inclusion of up to two new asset
classes.
Default Lifecycle Investment Strategy model
This Excel model allows you to investigate a member’s account balance depending on a number of
variables, which you can enter.
1. The switching ages within the DLIS
2. The expected return and risk assumptions for each investment option (should match your
conclusions in the Asset Allocation part of the case study)
3. Salary and superannuation contribution amount expectations for members
4. The impact of including a “shock” in your modelling. If you consider a shock, the model will
simulate two scenarios (shock and no-shock). The output is presented as two distributions
(graphs) on the Analysis tab.
The Analysis sheet allows you to look at the outcome for your simulations. You can see the range of
outcomes different scenarios produced.
Rules and Guidelines
The guidance should be based on publicly available information released prior to 1 April 2023.
Investment Committee presentation
Please be aware of the following when preparing your IC presentation.
▪ An electronic copy of your presentation slides needs to be submitted via Canvas.
▪ Presentations usually are made in a replicated boardroom setting. Presenters and IC members
will be seated around a Boardroom table (either real for CC workshop teams or virtual for RE
workshop teams).
▪ Presentations must be no more than 10 minutes in length. There will be an additional 10
minutes of Q&A.
▪ Presentations should be in PowerPoint format.
▪ Presentations must be no longer than 10 slides in length (excluding title page, team
introduction page and appendices). Any additional materials and/or supporting analysis should
be contained in the Appendices. Consider how best to communicate your recommendations
succinctly and effectively. What structure and layout would best convince the IC to change
from the current position? Consider the practicalities – how does your presentation look if it
were printed out? Can the presentation be easily navigated in discussion? Use page numbers
and have introduction and conclusion pages to communicate your recommendations clearly.
▪ The introduction page is one slide introducing your team members, including photos and
names; although this would not be necessary for an internal team in a typical IC meeting.
▪ Your pages should be numbered and please do not use dark backgrounds on your slides
▪ You should spend the majority of your presentation time elaborating and defending your
recommendations, conclusions and assumptions. While a full understanding of the detailed
research and analysis and careful modelling are all critical at arriving at appropriate decisions,
© 2023 The University of Sydney Business School 9
your presentation should primarily focus on your higher-level insights, conclusions and
recommendations.
▪ Wear business casual attire to your presentation.
▪ Each team member should speak as part of the presentation. You may assume that the IC
knows who you are (no introductions are needed) and have received a copy of your
presentation. You will spend the time in the presentation presenting two (2) recommendations
as per the topics in the Scope Guidance. Following your presentation, the IC will ask you
questions about your presentation. At least one question will be directed to each team
member, and the question may not necessarily address the material you personally presented.
Therefore, each team member must be able to discuss any part of your team’s
recommendations.
▪ Do not read from a prepared script or your smart phone. Occasional reference to notes or
your presentation are allowed but it is expected that most of your presentation time is spent
looking at and speaking to the IC.
© 2023 The University of Sydney Business School 10
Annexure 1 – The Investment Committee
The Board of Trustees of a superannuation fund have a fiduciary responsibility for managing and
investing the contributions of members. Unlike for-profit company boards, the Trustees of industry
(not-for-profit) superannuation funds are required to act in the best interests of members.
To exercise their fiduciary responsibilities, the Board of Trustees of Abercrombie Superannuation Fund
(the ‘Fund’) has delegated certain responsibilities to several Board committees:
▪ Audit, Risk and Compliance Committee
▪ Remuneration Committee
▪ Insurance Committee
▪ Investment Committee (IC)
The IC is populated by Board directors with a mixture of technical and non-technical backgrounds. This
is an experienced IC, but few are investment experts. Unusually, the IC Chair is rotated from meeting
to meeting.
The presentation is to the IC. The role of the IC is to invest funds in a manner consistent with the
investment objectives set by the Board. Other responsibilities include:
▪ Investment policy
▪ Investment strategy
▪ Asset allocations
▪ Investment performance
▪ Appointment and monitoring of investment managers
The biographies of the IC are summarised below:
Norma K. Dubois
Ms Dubois became Chair of the Fund in December 2018 following the retirement of Mr Fred Johnston
(who had been Chair for the previous 15 years).
Prior to this, Ms Dubois was the Deputy Chair of the Fund for the prior four years. She has a background
as an executive officer in the Legal Assistants Association and is a nominated representative on the
Abercrombie Board by reason of that position.
David Emet
Mr Emet was appointed in December 2018 following the retirement of Mr Johnston. His current roles
include membership of the Superannuation Expert Panel providing advice to the Government, Director
of a large ASX company, a senior partner in a large accounting firm and a director of a charity for
children facing long hospital stays. He has technical qualification in superannuation, accounting, law
and investment management. He is known for ruthless time management and an insistence on
relevance within committee meetings.
John Plum
Professor Plum has been a member of the Board for the last five years and is an independent director.
He has had a 20-year career as an asset consultant and maintains an academic position at a well-
regarded university. He acts as a technical advisor to several pacific island sovereign wealth funds. He
holds a Bachelor of Science degree, MBA and a PhD in Finance. Professor Plum is passionate about
© 2023 The University of Sydney Business School 11

investments and is known for expressing dissatisfaction at the end-of-financial-year performance
analysis.
Louise Membo
Louise has been an elected member of the Board for the last 10 years. She works as a legal assistant
in the Superannuation practice of a large law firm and is knowledgeable in superannuation legislation
and practices. Louise is passionate about achieving excellent retirement outcomes for the Fund’s
members. She holds a Bachelor of Business degree.
William Anzahl
Mr Anzahl is the most recent Board appointment and is an independent director. He holds
directorships of several ASX listed companies in the property, retail and insurance sectors. He was a
partner in a top-four accounting firm. Mr Anzahl is often frustrated at the level of debate
amongst the directors and is sceptical of new investment ideas. He is Chair of the Audit and Risk
Committee. He holds a Bachelor of Commerce degree.
Annexure 2 – Abercrombie Superannuation Pty Ltd Investment Governance Framework
See Abercrombie Superannuation Pty Ltd, Investment Governance Framework document.
© 2023 The University of Sydney Business School 12
Annexure 3 – Abercrombie Member Analysis
Each year the Fund’s Engagement team provides member analysis to assist the Investment team. The
table below summarises the distribution of Abercrombie member accounts within the Abercrombie
Superannuation Fund.
MySuper
Non-
MySuper Total
Average account balance $88,031 $118,009 $94,014
Number of members 96,348 24,022 120,370
Number of members (%) 80.0% 20.0% 100.0%
The average MySuper account balance is $88,031 which is 44% higher than the June 2022 MySuper
industry average of $61,030. The main reason for the higher account balance is that relative to the rest
of the industry, membership is heavily skewed towards members aged greater than 44. The diagram
below compares the age distribution of Abercrombie MySuper accounts with the industry.
In the 2022 December quarter, MySuper experienced a net outflow at a rate of approximately 2.6%
p.a. of assets.7 This is primarily due to many inactive accounts, many account rollovers and ‘baby
boomers’ reaching retirement.8
7 Outflows are a combination of benefits paid and outward rollovers. Inflows are a combination of inward
rollovers, employer contributions and member contributions less contribution taxes and the government
surcharge.
8 A superannuation rollover is the transfer of super funds from one super account to another. This may occur if
members are consolidating accounts or if they are switching to other superannuation fund providers or
transferring assets to SMSFs.
0%
5%
10%
15%
20%
25%
30%
35%
0-24 25-34 35-44 45-49 50-54 55-59 60-64 65+
Age Bands
Age Distribution of MySuper Accounts
Abercrombie - % of Mysuper accounts Industry - % of MySuper accounts
© 2023 The University of Sydney Business School 13
The table below provides a profile of the fund’s MySuper members.
Abercrombie MySuper Member Profile
More than 50% of the MySuper accounts and more than 60% of the MySuper assets are held by
members older than 55 years. The diagrams below show how account balance ranges are distributed
for oldest three age bands.
Age band 0-24 25-34 35-44 45-49 50-54 55-59 60-64 65+ Total
Number of members 2,023 5,876 9,827 12,140 16,090 19,945 21,583 8,864 96,348
Number of members (%) 2.10% 6.10% 10.20% 12.60% 16.70% 20.70% 22.40% 9.20% 100.00%
Average account balance ($000s) 5.88 26.32 57.54 78.96 94.78 111.16 105.56 86.94 88.03
Total assets ($ million) 11.9 154.7 565.4 958.6 1525.0 2217.1 2278.3 770.6 8481.6
Total assets % 0.1% 1.8% 6.7% 11.3% 18.0% 26.1% 26.9% 9.1% 100.0%
© 2023 The University of Sydney Business School 14
A key concern for Abercrombie is the impact of net outflows:
▪ The current market uncertainty has increased the number of members changing their
investment into lower risk profile options.
▪ The fund may require higher levels of cash (liquidity) to pay for the net outflows
▪ Cost cutting may be necessary and lower budgets for marketing and promotion may impact
the ability to attract new members
▪ Costs per member may increase as the Fund gets smaller
One way to potentially address the net outflow is to offer more attractive and tailored products for its
members. A "default lifecycle investment strategy” (DLIS) may be attractive to members as it assists
members who are not financially literate to move to a more appropriate asset allocation as they
approach retirement. Additionally, a DLIS ensures disengaged members are appropriately invested.
© 2023 The University of Sydney Business School 15
Annexure 4 – MySuper ratings
The ratings of the Abercrombie, legalsuper and AustralianSuper MySuper products from three
superannuation ratings organisations are summarised in the table below:
Organisations Super Ratings 9 Chant West 10 Canstar 11
Rating Scale
Abercrombie MySuper
legalsuper MySuper
AustralianSuper
MySuper
Ratings methodology
Investment
performance
25% 40%
50% Fees 15% 15%
Insurance 10% 10%
Member services &
other
50% 35% 50%
The reasons Abercrombie MySuper has underperformed its peers are poor investment performance
of the growth fund, high fees and poor services in the areas of education, communication materials
and advice.
9 Source: www.superratings.com.au
10 Source: www.chantwest.com.au
11 Source: www.canstar.com.au
© 2023 The University of Sydney Business School 16
Annexure 5 – Peer MySuper Products
As at December 2022, there were 69 MySuper products covering about $910 billion in superannuation
savings on behalf of 14.44-million-member accounts.12
The return and risk profiles and the strategic asset allocations for Abercrombie, legalsuper,
AustralianSuper and all MySuper funds are summarised in the table below:
Peer MySuper Products 13
Returns and Risk Profiles Abercrombie legalsuper Australian Super MySuper Funds
Target 10yr return > CPI 3.0% 3.0% 3.81%
Investment risk 14 5 3.5 5
Investment risk label High Medium to High High Mixed 15
Strategic Asset Allocation
Growth assets 16 85% 72.4% 74.6%
Australian shares 50% 26% 21% 19.0%
International shares 35% 28% 31.5% 27.0%
Infrastructure 0% 8.2% 14.75% 10.0%
Unlisted equity 0% 1.2% 5.5% 6.2%
Property 0% 12.8% 6.75% 8.9%
Fixed interest & credit 13% 16% 16% 17.7%
Cash 2% 5% 4.5% 3.4%
Other 0% 2.8% 0% 7.8%
SAA Ranges
Australian shares 30% - 75% 10% - 40% 10% - 45%
International shares 15% - 45% 0% - 40% 10% - 45%
Infrastructure 0% - 20% 0% - 30%
Unlisted equity 0% - 20% 0% - 15%
Property 0% - 25% 0% - 30%
Fixed interest & credit 10% - 23% 0% - 20% 0% - 45%
Cash 0% - 10% 0% - 20% 0% - 25%
Other 0% - 20% 0% - 30%
12 Source: APRA’s Quarterly MySuper Statistics Dec 2022 - (https://www.apra.gov.au/quarterly-superannuation-statistics).
13 Ibid
14 Investment risk is measured using the Standard Risk Measure (SRM) - the number of negative annual returns which could
be expected over any 20 year period.
15 As at December 2022, the 69 MySuper products had the following investment risk profiles: 39 single investment risk
profiles (of which – 20 High, 17 Medium to high, 1 Very high, 1 Medium); and 30 lifecycle investment risk profiles (where
default MySuper members are assigned investment options with lower risk profiles as they get older).
16 Growth/defensive SAA asset classification follows APRA practice: 100% growth for equity, listed property and listed
infrastructure; 75% growth, 25% defensive for unlisted property and unlisted infrastructure; 50% growth, 50% defensive for
commodities and other; and 100% defensive for fixed interest and cash.