Russell Garrett: Mercer NZ head of institutional wealth
Mercer is to launch a passive global equities fund backed by one of Europe’s biggest investment managers as the index trend gathers pace in NZ.
The almost-completed Mercer index fund will use UK-headquartered investment behemoth Legal & General (L&G) as underlying manager.
L&G is little-known in NZ but the financial services firm, founded in 1836, now manages almost £1 trillion in its investment fund arm across a range of active and passive strategies with about £375 billion in the latter. The L&G Investment Management All World Equity Fund boasts some £3.5 billion (or NZ$6.35 billion) under management.
Russell Garrett, Mercer head of institutional wealth, said L&G was a “substantial investment management group with a long track record in managing index funds”.
“We used the same process in selecting index fund managers as we do for active managers,” Garrett said.
L&G is already on the Mercer manager list in some other jurisdictions, he said. The L&G investment firm is among the top five biggest in the UK and ranks in the top 10 globally.
Garrett said, unusually for index managers, L&G applies a thorough environmental, social and governance (ESG) overlay.
“They proactively engage with the companies they own,” he said. “For example, L&G has identified 84 of the largest global companies in key energy related sectors for environmental conversations to raise climate change issues.”
The manager has also identified 58 companies that rate poorly on board gender diversity, raising the issue with 40 per cent of them during 2017 in actions that prompted eight changes to date.
L&G has a policy to vote against companies with no women on the board.
The Mercer fund, to be structured as a tax-efficient portfolio investment entity (PIE) for NZ investors, would also feature the now de rigueur exclusions of tobacco, controversial weapons manufacturers and the like.
According to Garrett, Mercer decided to add the international shares index option following demand from a number of wholesale clients with a handful of seed investors confirmed.
For now, the L&G-managed fund would be limited to wholesale clients but he expected interest from financial advisers as well.
The index fund could potentially end up in the Mercer “toolkit” for its range of multi-manager products, Garrett said.
“But it’s not proposed at the moment to include it in the Mercer KiwiSaver funds,” he said.
Mercer KiwiSaver already has a quasi-passive global equities option managed by Schroder Investment Management.
Once-launched, the Mercer fund would join a growing list of passive global equity funds offered in NZ including an AMP Capital NZ selection (available to retail and wholesale investors), a range of Smartshares exchange-traded funds and the Vanguard-backed Simplicity products.
Garrett said many wholesale investors were looking to index funds as a core global equities exposure, which freed up their “fee budgets” to spend on alternative assets such as private equity or infrastructure.