The New Plymouth District Council completed the wind-down of the sometimes-controversial Taranaki Investment Management Limited (TIML) last week, sacking the three-person staff previously responsible for running the $270 million Perpetual Investment Fund (PIF).
Council minutes from a February 16 meeting confirm the TIML team, headed by Mike Trusselot, would “be made redundant from 28 February 2017”.
“Restructuring costs of $332,491 have been included in the financial statements,” TIML accounts included with the minutes reveal.
The well-signaled move follows the appointment of Mercer last year as investment manager for the PIF after the New Plymouth District Council (NPDC) adopted a “fully-outsourced model” for the fund.
According to the latest NPDC risk management plan: “Outsourcing of the fund means that its management is now at arm’s length from the Council.”
The government-owned Audit NZ, which reviewed the NPDC last year, found “no issues” with the valuation of the PIF or the “effectiveness of the [Council] monitoring process” over TIML compliance with investment policies.
However, the Audit NZ report says TIML’s ability to set its own director fees was problematic.
“Given the level of cross directorships between TIML, Van Diemens Land, Tasman Farms Limited and Tasmanian Land Company, there is a potential for a perceived conflict of interest when director’s fees are being set,” Audit NZ says. “Our review of TIML’s Board meeting minutes indicates that the potential conflicts of interest are not being managed at an expected level.”
The NPDC response says that, while absent from the minutes, the now-departed TIML chair, Keith Sutton, confirmed TIML board members “recused themselves from discussions on directors fees that affected them”.
“As you have noted Council has delegated to TIML the management of the subsidiary entities that are effectively PIF investments; this included setting of director fees,” the NPDC says. “This was due to TIML having responsibility for managing the PIF and better placed to make commercial decisions, including director’s fees, regarding these subsidiaries.
“With the current restructure of the management of the PIF these issues will not arise once the transition is completed.”
The TIML accounts show a TIML director charged the Van Diemen’s Land Company some $253,000 for “professional services”.
“Directors fees have been recovered from the Van Diemen’s Land Company for the previous financial year,” the NPDC document says. “The revenue is being recognised in this financial year.”
TIML recorded a profit of about $90 million last year following the sale of its Tasmanian dairy farm assets, which represented about 70 per cent of the PIF and a significant deviation from target asset allocation.
Since inception in November 2004 the PIF returned an annual 6.95 per cent compared to its benchmark 6.52 per cent, paying out just over $190 million to the NPDC along the way.
Last year NPDC also hired consultancy firm Melville Jessup Weaver to produce a new asset allocation model prior to the appointment of Mercer.
Following the Tasmanian farms sale TIML has been “progressively rebalancing the PIF by adding exposure and further diversification to the portfolio with listed equities and ETFs in New Zealand, Australia, USA, Europe and emerging markets” as well as adding property and alternative assets “as opportunities arise”, according to the PIF accounts.
As at September 30 last year, the PIF had about 10 per cent in alternative assets managed by Barings Asia Private Equities, Direct Capital and Pioneer Capital.
“Over the long term we expect growth assets in private markets to outperform listed markets on a risk-adjusted basis and would lift exposure to the target 30% level,” the document says. “Property exposure will also be added to the PIF either through listed property trusts, syndications, or direct investments over the short and medium term to the target 20% level.”
The report shows over 60 per cent of the $270 million PIF was in cash at the end of September last year. Mercer formally took control of the PIF on March 1.