Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
New Zealand Super gets acting CIO as Gilmore goes west
Alex Bacchus will take on the acting CIO role at NZS as Stephen Gilmore ends his more than five-year stint at the now $75 billion sovereign wealth fund this month to assume the same role at the biggest US pension fund, CalPERS. CalPERS, which manages the pension money of Californian public employees, is over 11-times the size of the NZ fund with about US$830 billion in the kitty at last count.
Bacchus has held multiple risk and asset allocation roles at NZS after joining the fund from Goldman Sachs JBWere NZ in 2009 where he was director for derivatives. In 2014 he took over as head of strategic tilting, a dynamic asset allocation approach that has been the fund’s best active bet since inception according to the 2023 NZS annual report.
“The strategic tilting opportunity contributed $935 million in value add in 2022/23, and represents the NZ Super Fund’s largest contributor to value-add since inception of approximately $4.6 billion,” the report says.
Strategic tilting increases exposure to cheap assets and decreases exposure to expensive assets based on price and long-term valuation signals and is used across equities, bonds, credit, currencies, commodities and REITs – largely in international markets, though it does take positions in the NZ dollar. In the decade from its inception the strategy added one per cent per annum, significantly above the expectation of a 40 basis point value add.
The strategy has been such a hit that the Accident Compensation Corporation fund followed suit in 2020, dipping into the NZS talent pool by luring then head of asset allocation, David Iverson, and local equities portfolio manager, Sam Porath, to repeat the magic.
The NZS has seen its two top executives leave within the last six months with Gilmore exiting soon after new chief Jo Townsend joined in January to replace the long-serving Matt Whineray. Whineray is now chair of KiwiSaver, funds management and wealth advisory roll-up, FirstCape. Townsend said the fund had begun recruiting for a permanent CIO.
