The almost NZ$50 billion NZ Superannuation Fund (NZS) has added three new external mandates and cut one long-time manager from its roster over the last eight months.
According to information updated in the wake of last week’s annual results, the NZS recently dropped LSV Asset Management, from a NZ$460 million emerging markets equities mandate – a gig first awarded to the Chicago-based value manager in 2005.
As well as cutting LSV, the fund hired Robeco, Hillwood and The Carlyle Group to manage assets across multi-factor equities, US real estate and diversified insurance strategies, respectively. The Robeco appointment comes on the back of a major expansion of the NZS equity factor exposure first mooted a couple of years ago. Last year the NZS doubled its ‘smart beta’ exposure, adding a collective $2 billion to existing multi-factor mandates held by AQR and Northern Trust.
Robeco has some local clients – including fixed income mandates with Mercer and the Accident Compensation Corporation (ACC) fund – but the NZS role probably marks its first equity factor win in NZ. The manager runs a multi-factor equities ‘custom index’ for the NZS.
Founded in Rotterdam in 1929, the Robeco opened a Sydney office in 2012 to expand its reach into the Australasian market.
Known for its quant-based investment style, the firm – now owned by Japanese Orix Corporation – also has a strong environmental, social and governance (ESG) bent. As at the end of last September, Robeco had over US$320 billion under management including US$116 in quant strategies and almost US$210 billion under ESG-integrated funds.
Meanwhile, NZS has invested in the Texas-headquartered Hillwood via the underlying US Industrial Club V-North American real estate fund.
Hillwood was launched in 1988 by Ross Perot Jr, son of one-time US presidential hopeful, Ross Perot. A successful businessman, Perot (senior) stood as an independent in the 1992 US presidential elections, garnering the highest ever share of votes (19 per cent) for a candidate not linked to one of the two major parties.
Another investment firm with links to US political history (one of its founders worked in the Carter administration), The Carlyle Group manages “diversified life and non-life insurance strategies” for the NZS. The Carlyle Group has sparked some controversy in the past through its links with the US defence industry.
Currently, the Carlyle Group has investments in 17 financial services firms globally. The group, which boasts about US$225 billion under management, has also been touted as a potential buyer of the AMP NZ business.
Last week, NZS chief, Matt Whineray, said the fund underperformed its passive reference portfolio over the 2019 calendar year by about 1.6 per cent – mainly due to valuation timing differences of its illiquid and liquid assets during a bumper year for markets.
“The net effect is that during periods when liquid equity markets rally strongly, as was the case during 2019, the performance of those infrequently valued assets tends to lag the reference portfolio proxy (of listed equities and bonds),” the NZS release says.
Over 2019, the NZS returned more than 21 per cent, after costs but before tax, with the fund’s large passive exposure (representing about two-thirds of the $47 billion plus assets under management) up almost 23 per cent.
However, Whineray warned to “expect lower returns” ahead as the NZS dialed-back risk exposure in the short term.
“Looking further ahead we remain well positioned to exploit emerging opportunities and are exploring a range of potential investments in New Zealand and abroad, particularly in infrastructure and real estate,” he said.
Now flickering around the $48 billion mark, NZS returned 10.32 from inception until the end of 2019 (again, post costs and pre-tax) – equating to almost $9 billion above the reference portfolio.
– David Chaplin, Investment News NZ