The $4.5 billion Government Superannuation Fund (GSF) has tweaked its manager line-up over the last few months as it gears up exposure to global equities.
Since its June 30, 2019 report, the GSF added T Rowe Price and QTron Investments as international share managers while ditching PanAgora from the same asset class.
In total, the GSF invests via 25 underlying managers including two – ANZ Bank and State Street – that look after foreign exchange hedging in fixed income and global equities, respectively.
With the addition of T Rowe Price (Australia) and QTron the fund now has six international share managers. The GSF also has exposure to a range of other global asset managers covering insurance-linked, multi-asset, private equity, hedge funds and fixed income styles.
While the Baltimore-headquartered T Rowe Price is well-known in NZ, the quantitative manager QTron is a new name in these parts.
QTron was founded in 2016 by two former portfolio managers at PanAgora, the firm it displaced at the GSF.
Co-founders Dmitri Kantsyrev and Ronald Hua worked together at PanAgora on the group’s Dynamic Equity products over several years prior to 2011. Hua decamped to Goldman Sachs Asset Management in 2011 while Kantsyrev remained at PanAgora until 2016.
Both QTron founders hold impressive academic credentials across finance and scientific disciplines.
Kantsyrev, for example, was a research scientist at the University of Michigan Spin Physics Center before bouncing to finance.
At Michigan he worked on experiments “to develop and test Siberian snakes and Spin-flippers, which are now used to accelerate and store high energy polarized proton beams” – skills that probably translated well to finance.
As reported last year, the GSF plans to gradually alter the fund’s asset class mix over the next few years in a move that will see the reference portfolio hold 80 per cent in global equities and the remainder in offshore bonds.
The 2018/19 GSF annual report shows the reference portfolio settings are currently at 65 per cent international shares, 10 per cent NZ equities and 25 per cent global fixed income.
In the latest independent actuarial review of the GSF published this year, Willis Towers Watson Australia senior consultant, Matthew Burgess, notes “the Board has decided to increase the equity allocation in the Reference portfolio by 2020, and has recently changed the asset allocation in the Target Portfolio”.
“In our opinion, given the circumstances of the Fund, in particular the long-term nature of the benefits and the partially funded status, the assets and the investment strategy are within the range of what is suitable for the purposes of the Fund,” the report says.
The GSF investment pool partially defrays the cost of servicing defined benefit pensions of some former and current government employees.
According to the Willis Towers Watson report, the GSF had about 3,000 contributing members and almost 48,000 pensioners (included some suspended and deferred pensions) as at June 30 last year.
The GSF has an unfunded liability of over $8 billion, requiring the government to top-up pension payments each year to the tune of $700 million or more.
Investment income contributed $194 million to the GSF over the 12 months to June 30 compared to $470 million in the previous annual period.
Willis Towers Watson highlights a number of risks to the GSF including investment volatility, a decline in the discount rate (which pushes up the cost of future liabilities) and “higher than expected claims” on its self-funded health and life insurance cover.
“However, given the high average age of current active members the value of death or ill health benefits are not materially different from the value of retirement benefits,” the report says.
“Furthermore, in the event of a pandemic affecting the general population the effect of an increase in deaths amongst active members is likely to be offset to some extent by deaths among the current pensioners.”