The New Zealand Superannuation Fund (NZS) has sparked up its dormant internal local equities passive mandate under a revised investment policy published at the end of August.
In 2013 NZS switched to running its-then approximately $300 million in-house local shares portfolio from passive to active management. NZS originally took the passive local equities internally in 2009 after ending an external mandate with the NZX-owned index manager Smartshares.
However, in August NZS reinstated the passive local shares capacity with an updated ‘internal investment mandate’ (IIM).
According to the rebooted IIM 3, the purpose of the new NZS passive local equity mandate is to “facilitate completion of Rebalancing Target weights for the NZ Equity asset class”.
“The Mandate is intended to passively track the Benchmark index, subject to implementation efficiency and minimising market impact,” the NZS policy says.
The passive mandate will work in tandem with the in-house NZS active shares portfolio.
An NZS spokesperson said the move was essentially designed to help the fund implement actual investments as they varied against the, recently-revised, reference portfolio.
“The mandate will help buffer our active managers (internal and external) from changes to the fund’s exposure to New Zealand equities that are driven by other portfolio movements, such as the sell-down of passive equity holdings to fund the purchase of new active investments and vice versa,” the NZS spokesperson said.
She said NZS would not reveal the size of its passive local equities exposure due to commercial sensitivities.
It is understood the NZ in-house local shares team currently manages in excess of $600 million, comprising the original internal mandate and the ‘suspended’ active portfolio previously managed by Milford Asset Management.
Late in July, Daria Murray, quit after less than six months as portfolio manager on the NZS local equities team, shifting to a senior analyst role at ANZ Investments. Murray has yet to be replaced.
NZS made several other changes to its internal investment mandates in August, including scratching global inflation-linked bonds (now removed from the reference portfolio).
The fund has made a number of IIM amendments over time including bundling up its cash, tax pooling, collateral, liquidity into two concurrently managed cash and active collateral mandates. The fund previously ran a passive NZ cash mandate. It also switched from a passive currency overlay to a new more active currency hedging arrangement some time ago.
Last week, the NZS also published two papers detailing its investment manager selection process (by Paul Gregory and Chris Jagger) and how it approaches risk and liquidity, authored by David Iverson, head of asset allocation
At the same time, the NZS website published a report by UK legal firm, Clifford Chance, on the recent decision to allow a British court to hear the dispute between the fund (and other co-investors) and the Portuguese Novo Banco. NZS wrote-off $200 million in February in relation to a disputed loan to the now defunct Banco Espirito Santo (BES). The Portugese government transferred BES’ good assets to Novo Banco but cut NZS (and other litigants) claim on the funds.
The Clifford Chance paper says the recent UK court decision “is the first case since [EU Bank Recovery and Resolution Directive] implementation in which an English court has had to consider the effectiveness of a statutory transfer of an English law agreement made by the resolution authority of another Member State”.