The NZ Superannuation Fund (NZS) has doubled-down its equity factor bets during the 12 months to June 30, shifting about $2 billion into two reformulated quant-based mandates.
According to the 2019 NZS annual report released last week, the $44 billion fund had about $3.7 billion (or 8.6 per cent of total assets under management) invested in multi-factor equities, split evenly between AQR and Northern Trust mandates.
At the same time last year NZS reported roughly $1.7 billion in low volatility/value factor mandates with the same managers (although AQR looked after a slightly larger share of the pie).
NZS had been reviewing its factor exposure for some time but signaled a portfolio move was imminent in August this year.
At least some of the new factor money was likely reallocated from another Northern Trust investment – a global fixed income mandate that shrunk to zero from almost $1 billion last year.
“Northern Trust’s passive global fixed income mandate was defunded during the year, but remains open and available for future investment,” the NZS report says.
However, aside from a handful of external mandate changes during the year (reported here), the NZS third-party manager list remained stable over the year, with some minor changes in funds under management (FUM) largely explained by market moves. For example, both NZS external local equity managers – Devon Funds and Mint Asset Management – saw FUM increase from about $350 million apiece to over $400 million each during the 12 months to June 30.
But after a long period of bringing many bespoke investment activities in-house (NZS runs almost 20 strategies internally), the fund recently folded its cards in one area where it had experienced mixed success.
Matt Whineray, NZS chief, says in the annual report: “After coming to the view that we did not have an origination advantage in international direct investment and that we should focus instead on leveraging our external managers’ relationships to secure these opportunities, such as through coinvestment structures, we disestablished the International Direct team, resulting in one redundancy.”
In the wake of the restructure, Nigel Gormly, former head of international direct, has left the NZS with other staff and responsibilities transferred to the externally managed investments and NZ direct teams. The NZ direct unit, now rebadged as ‘direct investment’, is headed by Will Goodwin.
“The changes have given staff the opportunity to work across a broader range of investments, and a number of new roles have also been added, giving us more depth, especially at the analyst level,” Whineray says in the report. “The Guardians remains a supportive shareholder of its existing portfolio of direct offshore investments, and we are continuing to manage these in-house.”
NZS has direct stakes in several offshore firms including US glass manufacturing firm, View; New York-headquartered alternative energy business, Bloom; and, Australian beef farm investment, Palgrove.
In 2017 NZS wrote down almost US$50 million on its investment in US wind energy company, Ogin, while Bloom’s “investment performance has been disappointing”, the annual report says.
Last week, NZS also admitted defeat in another ill-fated offshore venture, dropping its legal pursuit of more than $200 million that disappeared in a soured 2014 loan to Portuguese Banco Espírito Santo via the Goldman Sachs-brokered Oak Finance vehicle.
Whineray said in a statement that while the action was justified “the decision to stop pursing the case is a purely rational one based on the efficient use of the Guardians’ resources and capital, which would be better expended on investing in New Zealand’s future”.
NZS wrote down the Portuguese bank loan to zero in 2015.
The 2019 report also reveals Whineray’s total remuneration package topped $1 million over the year. Overall, NZS has budgeted for a total headcount of more than 170 by next June compared to current levels of about 140 (which is almost 20 below forecast).
During the year head, NZS will complete a number of reviews including remuneration, staff culture and its reference portfolio.
As at last week, NZS reported FUM of more than $44 billion with an annualised return since inception in 2003 of 10.1 per cent (before tax and after costs), representing earnings above the reference portfolio of $8.5 billion.
In 2017, the Labour-led administration reinstated government contributions to NZS after an eight-year hiatus. The government will tip in $1.5 billion to the fund in the current fiscal year.