The Hawke’s Bay Regional Investment Company (HBRIC) has stuck by its asset allocation settings following a recent review.
Controlled by the Hawke’s Bay Regional Council, HBRIC has invested about $150 million, split almost equally between underlying managers Jarden and Mercer.
As reported here, Mercer and Jarden (then FNZC) picked up the first tranche of HBRIC money in 2018 as the Council found a home for $50 million previously earmarked for the now-abandoned Ruataniwha dam project.
Late last year, the Council tipped in another $100 million or so comprising about $80 million from its share of the Napier Port IPO plus and extra $25 million of loose change.
“Staff have engaged both of the Council-approved fund managers (Mercer and Jarden) to deploy this additional capital within Council’s currently managed portfolios, in accordance with the Council’s SIPO [statement of investment policy and objectives],” Council minutes reveal.
Formally, the HBRIC money is held in two vehicles – the Long Term Investment Fund (dam money) and the Future Investment Fund (port proceeds plus) – managed in six portfolios.
While Jarden and Mercer both urged HBRIC to consider upping the risk exposure (currently set at 50/50 growth and income), consultancy firm PwC deemed the SIPO as “fit for purpose”.
In the HBRIC report tabled with Council in February, PwC says it would not be “prudent to alter the portfolio’s strategic asset allocation by moderating the risk profile”.
“This would introduce a level of risk to the portfolio that is not congruent with Council’s willingness and ability to take risk,” PwC says in the report. “It may also hinder Council’s ability to achieve its investment objectives should a significant negative event occur in any period.”
HBRIC notes Jarden was “again adopting a staggered implementation approach, meaning both portfolios are not yet SIPO compliant with their target asset allocations”. Jarden had invested 25 per cent in growth assets by the end of last year against the 50 per cent SIPO target.
The stock broking firm adopted a similar drip-feed portfolio build with its now-compliant Long Term Investment Fund allocation.
Mercer, however, jumped straight to SIPO targets with both HBRIC tranches.
“We would suggest adding SIPO compliance explicitly as one of the factors to be taken into account when reviewing the managers,” Mercer says in the review commentary.
PwC also backed Mercer’s call to formalise the HBRIC ethical investment policy, which the Council wrestled with in the original 2018 mandate.
“Based on recent discussions with [Council] management, PwC believe this issue will become more important over the coming years and believe it would be appropriate to start formalising a policy at this juncture,” the review says. “PwC understand that a discussion with elected councillors to articulate this policy is to be undertaken.”
Both Mercer and Jarden racked up returns of about 11 per cent since inception on their respective Long Term Investment Fund portfolios, and just under 2 per cent on the port portfolios.
In January, three Hawke’s Bay Regional Council members joined the HBRIC board to replace two outgoing directors.
The trio of well-known local identities – Neil Kirton, Rick Barker and Craig Foss – join independent director, Dan Druzianic, who also serves as HBRIC chair.
HBRIC manages a range of assets for the Council including the 55 per cent share of Napier Port it retained post float last year.