Westpac KiwiSaver has dropped Vanguard as global equities manager for its default fund in the first phase of an across-the-board ethical-cleansing at its investment management division.
The change, executed in December by Westpac subsidiary BT Funds Management NZ, saw the AMP Capital international equity index fund take over the global shares mandate for the bank’s KiwiSaver default option (which last reported funds under management of $85 million). This month AMP Capital itself will shift some A$17 billion from long-time underlying international shares index manager, State Street, to new provider, UBS.
With a current global equities exposure of roughly 8.4 per cent, the Westpac default mandate move amounts to a little over $7 million – hardly a big deal for the world’s largest fund manager Vanguard. However, fellow bank, ASB, also removed Vanguard as international shares provider last year across its $10 billion plus investment products (including the more than $6 billion KiwiSaver scheme), resulting in successor manager, BlackRock, picking up an over $1 billion passive global equities mandate.
Both changes were prompted by a public outcry last year about potential exposure of KiwiSaver schemes investing via index funds to banned cluster munitions manufacturers. In response Vanguard rolled out a global equities fund for the Australasian market featuring appropriate exclusions. A number of NZ managers – including Simplicity and Booster – switched to the new Vanguard product.
It is understood potential tax inefficiencies of the Australian-domiciled Vanguard fund for NZ investors may have influenced the BT Funds decision to opt for the domestically-registered AMP Capital fund.
But, according to a Westpac spokesperson, the default fund equity manager change is part of a wider revamp of its investment products.
“BT Funds Management (NZ) is progressively removing its exposures to munitions and tobacco from all its managed funds by restructuring its investment funds,” the spokesperson said.
The global equity investments in controversial weapons firms should be cut from all BT NZ funds, including the entire Westpac KiwiSaver range, by the end of this May. BT manages about $10 billion in NZ retail funds.
“Exposures through international fixed interest are expected to be removed by the end of August 2017,” the spokesperson said.
“We will also remove tobacco exposures from all our funds by the end of August 2017.”
While the default fund global equities controversial weapons exposure was relatively easy to resolve, BT NZ has a long list of underlying active international shares and fixed interest managers to work through. In addition to its in-house global shares capability, the latest disclosure document names international equities managers as: AQR Capital Management; Ardevora Asset Management; Lansdowne Partners; MFS Investment Management; River and Mercantile Asset Management; and, T Rowe Price.
On the global fixed side, BT invests via: Kapstream Capital; Standish Mellon Asset Management; and, Wellington Management.
The Westpac-owned investment house also has exposure to global alternative products through K2 Advisors, BlackRock and Goldman Sachs. Last year, BT dumped the alternative investment funds managed by fellow Westpac group, Advance, from its roster. At the time, Matthew Goldsack, BT NZ head of investment strategy, said: “With market risks and valuations across most asset classes at elevated levels, there is a real need to manage diversified pools of assets beyond the traditional asset classes.”
In line with the latest portfolio changes, BT NZ would also finalise a new responsible investment policy by the end of August this year. The new policy would outline how “environmental, social and governance issues are incorporated into the investment process”, the spokesperson said.