NZ fund looks for implemented provider for $257m

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(pictured: Alan Bird)

The New Plymouth District Council (NPDC) in New Zealand has ditched its in-house investment strategy in favour of a fully-outsourced approach. It is conducting a review of potential providers.

Following the changes approved at an official meeting last week, the Council will seek an implemented solution for its approximately NZ$270 million (A$257 million) investment portfolio previously managed by subsidiary Taranaki Investment Management Limited (TIML), according to NPDC chief financial officer, Alan Bird. “We are looking for an investment consultant who will choose a variety of underlying funds to invest in,” Bird said.

The radical revamp of the often-controversial TIML was recommended by Auckland-based investment bank Cameron Partners in a review commissioned by the NPDC this March.

In its review Cameron Partners says the concentration of investment decision-making power in TIML, which essentially controlled the NPDC Perpetual Investment Fund (PIF), could result in “actual and perceived conflicts of interest”.

“The current TIML arrangements create conflicts across each of the key decision areas and to meet best practice organisational architecture benchmarks will require significant changes,” the Cameron Partners review says.

“… In addition NPDC’s ownership of TIML creates potential risks / issues in a number of areas including inhibiting:

  • ‘Arms-length’ hire / fire decisions due to soft and hard cost considerations
  • Setting appropriate remuneration arrangements.”

The TIML board comprises Keith Sutton, Jason Dale and Jamie Tuuta. Former Fonterra chief, Craig Norgate, was also on the TIML board until his death last July.

Current TIML chief executive officer, Michael Trousselot, joined TIML in July 2008 after a seven-year stint heading the West Coast Development Trust.

Under the proposals, due to be refined and presented to Council on September 27, TIML would be “repurposed and renamed (New Plymouth PIF Guardians Ltd – NPG)” to comply with the new hands-off investment approach.

A panel comprising NPDC Mayor, chief executive and Cameron Partners’ Rob Campbell, will select four PIF Guardians, including one existing TIML director. Bird, as Council CFO, will also serve as a non-voting observer on the PIF Guardian board.

According to the timetable published in NPDC minutes, the Council will put TIML funds out to tender after September 27 with transition to the new manager scheduled by March 1 next year.

In a release on March 1, 2016, TIML chair, Sutton, said the Council-owned fund “averaged a 7.2 per cent after tax per annum return, and delivered total investment returns of $208.5 million to NPDC”.

“The balance of the fund has performed as expected and exceeded its financial market benchmarks for the half year to 31 December 2015,” Sutton said in the statement.

He said TIML funds totaled $269.4 million as at December 31 last year.

However, the TIML investment strategy has deviated considerably from the direction to follow a diversified portfolio approach. In particular, TIML’s 2008 $100 million plus investment in Australia’s largest dairy farm, located in Tasmania, eventually constituted about 70 per cent of the portfolio.

According to the NPDC minutes: “Any historical return assessment is further complicated by the fact that, over the past ten years, the PIF was heavily weighted by its investment in Tasman Farms which was outside the agreed policy and the strategic asset allocation.”

Last year the Council pushed TIML to sell down Tasman Farms. Following a fraught sales process, that included legal action after TIML accepted an offer from a Chinese firm while rebuffing a previous bid by an Australian company, Tasman Farms returned net proceeds of about $195 million, representing a margin of close to $90 million on purchase costs.

The Cameron Partners report says that “while all funds seek to achieve ‘above average returns’, given the difficulties in consistently doing this long-term we consider a more appropriate approach is to identify any barriers / ‘inhibitors’ to the achievement of average returns”.

After completing a request for information process from 15 consultants and managers, the Cameron Partners review concludes an implemented investment solution could also prove cost-effective.

According to Cameron Partners, the pool of fully outsourced investment consultants available to NPDC could include Russell Investments, Mercer, Eriksson & Associates; Aon Hewitt; JANA and Cambridge Associates.

– David Chaplin, Investment News NZ

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