Mercer has picked up a A$280 million investment mandate in Tuvalu, replacing short-term incumbent Russell Investments NZ as manager of the tiny Pacific Island’s sovereign wealth funds.
Under the deal announced last week, Mercer will convert the core A$200 million Tuvalu Trust Fund (TTF) to an implemented consulting model while also managing three other government investment vehicles – the Consolidated Investment Fund (CIF), Climate Change and Disaster Survival Fund, and Falekaupule Trust Fund – currently carrying a collective value of about A$80 million.
In a statement, Craig Hughes, Mercer Pacific head of investment solutions, said the manager was seeing rising demand for implemented consulting.
“Managing a portfolio in this economic climate is becoming increasingly complex, and access to certain asset classes is challenging without deep knowledge and significant scale,” Hughes said.
The Tuvalu move follows a brief tenure in the role for Russell, which took over from EriksensGlobal in 2020. According to the 2021 International Monetary Fund (IMF) Tuvalu review, the TTF used AMP Capital and Schroders as underlying asset managers as at last year.
Tuvalu Finance Minister and TTF chair, Seve Paeniu, said in a release that the switch to an implemented consulting approach under Mercer enabled the fund to “stay true to our investment purpose, beliefs and objectives, leaving resource intensive tasks to those that have specialist capabilities”.
The IMF report says: “Over the last 10 years, an average of 45 percent of TTF were allocated into defensive assets, 35 percent into growth assets, and 20 percent into diversified assets.
“A World Bank’s study finds that returns of TTF’s investment strategy are lower than those achieved by funds of other three Pacific Island Countries and investment alternatives.”
Established in 1987 with the support of the Australian, UK and NZ governments, the TTF provides fiscal ballast for Tuvalu with excess funds above a ‘maintained value’ shifted to the Consolidated Investment Fund, which is available for use in budget expenses.
The TTF represents about 220 per cent of the Tuvalu GDP, the IMF report says.
“However, the country continues to face significant structural challenges,” the IMF says. “Due to its low elevation, Tuvalu is vulnerable to the threat of rising sea levels and to natural disasters, thus requiring significant funds to climate-proof its infrastructure.”
Only 200 metres across at its widest point, the Pacific state comprising nine small atolls and reef islands derives most of its income from selling fishing rights as well as generating a substantial economic boost from its internet domain handle of .tv – contributing about 8.5 per cent to the government’s annual revenue, the IMF data shows.
Tuvalu – population about 12,000 – is also at the pointy end of climate change with rising oceans threatening to swamp the low-lying region (averaging about 3 metres above sea level) within the next 50 to 100 years, according to some scenarios.
Dotted with various government funds, the Pacific Islands has emerged as a competitive space for NZ and Australian-based investment advisers.
Over the last few years, for example, the NZX-owned SuperLife has won two mandates from a restructured Nauru investment vehicle and the Tongan Retirement Fund, respectively. Russell NZ currently manages the NZ$200 million plus Cook Islands National Provident Fund, which conducted an investment review in 2021 with portfolio changes slated for this year, according to the fund’s most recent annual report.
The Pacific Provident Fund and Social Security Forum – a collective of regional government investment vehicles – lists 18 members, a figure that includes the NZ Superannuation Fund and the Ngati Awa group.