Active fund managers of the world, rejoice! The notoriously self-sufficient NZ$30 billion (US$19 billion) New Zealand Superannuation Fund (NZ Super) has set out its criteria for selecting active managers.
However, before you book your flights to the other side of the world to pitch to this world-leading investor, it would be worth working through the extensive checklist first—the bar has been set pretty high.
“Prior to commencing an investment manager search process for a particular investment opportunity, we have a very clear idea of why we need a manager in the first place.” —NZ SuperIn a white paper published last week, NZ Super CIO Matt Whineray explained the fund’s reluctance to appoint active fund managers at all.
“Our default preference is for simple, listed, passive exposures. Thereafter, it is for active exposures which we manage ourselves,” the white paper said. “This is because we have most confidence in the expected return of an investment when it is simply the market return (for passive exposures), or, for active exposures we manage ourselves, because (i) we can see and articulate the return drivers and (ii) we can change the risk allocation through time, according to our view of the investment’s attractiveness.”
The fund uses managers for passive exposures as they provide scale, systems, and market breadth and depth capabilities. The strategies also come at “a very low cost such that we need not develop those capabilities in-house.”
Conversely, actively managed assets have traditionally been the domain of the fund’s in-house team, but this paper explains how external providers can get a piece of the pie.
“Prior to commencing an investment manager search process for a particular investment opportunity, we have a very clear idea of why we need a manager in the first place,” the fund said.
The investment committee has a view on a range of factors to consider when allocating to an asset class—and to a certain investor—and it expects “the manager to help us refine during the search process”.
But don’t just expect to just turn up with your track record and process outline. The fund’s investors want more than that.
“It is not enough for us to be confident that we have found the capabilities we want,” the paper said. “We must also be able to access them in a way which we believe maximises the alignment between the manager and ourselves, in meeting our investment objectives for our overall portfolio.”
The fund “can still walk away” if it cannot agree on terms and a structure that it feels are fair, the paper said, as its own investments will sustain them.
Finally, once you have managed to cement a brief from the fund, don’t think it is all plain sailing. Each year, the fund’s team will assess managers on several tangible and measurable factors to ensure they are still doing what they promised—and as well as they can.
For a full run-down on what is expected from a successful active manager, read the white paper on the fund’s website.
Related: An SWF’s SWF