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Hostplus CIO Sam Sicilia’s super high risk strategy faces its toughest test


But now, with the coronavirus pandemic wreaking havoc on the economy and emergency government legislation enabling out-of-work Australians to draw down on their super savings well before retirement, the former business lecturer’s approach is being put to the test.

Figures show there have been more than 900,000 applications for the early access to super scheme totalling more than $7.5 billion since it opened two weeks ago. Hostplus processed 84,613 of those claims worth $603 million in the first week alone.

Proponents argue that unlisted assets provide diversification from listed markets such as shares and also deliver superior returns over the long term. But they are also much harder to sell in a downturn.

And for Hostplus this appears to be a problem.

Faith in technology

Blackbird Ventures founder Niki Scevak first met Sicilia in 2015 at the fund’s William Street office in Melbourne. Scevak had made the same pitch to every superannuation fund in the country and was rejected by almost all of them.

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Blackbird was looking for the “most ambitious Australians” to finance companies that Scevak said could become the best in the world. Sicilia was enthusiastic about the concept from the first meeting, Scevak says, and the wider Hostplus team was ahead of the curve in recognising the “renaissance” in Australia’s startup scene.

“There was a shared belief that Australia can create great technology companies and Sam, Neil [Stanford] and the team at Hostplus are certainly believers that it’s possible.”

Since that meeting, Hostplus has invested more than $100 million with Blackbird and over $1 billion more across about 30 venture funds including Square Peg Capital, Artesian, Safar Partners, Carthona Capital and Carnegie Venture Capital.

Its early exposure through Blackbird to local startups with billion-dollar valuations including $4.7 billion design platform Canva, employee tracking service CultureAmp and workplace safety software provider SafetyCulture remain poised to pay off handsomely.

Hostplus declined to comment for this story and Sicilia was not available for an interview. But the man’s passion for disruptive technology and investment philosophy was made clear in a Bloomberg interview in 2019. “We know unlisted assets provide downside protection from the volatility of equity markets,” Sicilia said. “And so we take advantage of that characteristic, and that’s what drives this fund.”

Petre is confident the super sector will not retreat from VC investing due to the current liquidity issues caused by the COVID-19 pandemic. “When you get away from ranting headlines and unpack it, good venture firms can hold their heads up high compared to the best performing private equity or credit funds,” he says.

Once in a hundred year event

Jeremy Colless, the chief executive of another VC firm Artesian, says a well-diversified alternatives portfolio can bring enormous rewards to members. “For every risk, there is a price,” he says.”If you ignore what’s going on in VC, you do so at your own peril. Technology companies now pretty much rule the world.”

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Colless says Hostplus was a natural fit for VC because it has one of the youngest member demographics. “If the purpose of super is to invest for the long term, then his investors have 30 plus years until retirement. He [Sicilia] was in a position where it was highly appropriate to collect the illiquidity premium.”

But that very demographic could now be the fund’s Achilles heel. The typical Hostplus member works in hospitality, sport or tourism – among the industries hardest hit by the coronavirus– meaning the fund has less money coming in and the higher potential for withdrawals.

Hostplus rushed to increase its cash reserves from just $530 million in September to more than $6 billion it has now. An out-of-cycle valuation resulted in Hostplus’ $1.04 billion investments in VC dropping by 15 per cent and the fund recently updated its product disclosure statement to highlight its powers to suspend cash redemptions. Chief executive David Elia has persistently defended the fund’s liquidity.

Funds including $100 billion First State Super and healthcare fund Hesta began dipping their toes into VC investing around 2012, but none as forcefully as Hostplus.

Colless says the startups in VC funds are better placed to weather a recession than larger companies and pointed to the years following the global financial crisis when many major US tech companies hit their strides. He acknowledged companies in Artesian’s VC fund are struggling right now but says this was “no different from any other industry”.

“The great thing about startups is they are small, nimble and innovative so they are probably far better positioned to address the new world on the other side of this crisis,” he says.

Blackbird’s Scevak says selling in financial markets has been indiscriminate and investors who stay the course will be rewarded. “The largest companies of the past decade are not going to be the largest companies of the next decade.”

Deloitte’s head of super Russell Mason did not want to comment on Hostplus specifically but said “armchair” criticism of investment strategies were unhelpful. “I really do believe this is a one in hundred year event. It’s very unfair to say people should have been expecting this.”

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