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.
Henaghan back as a CIO…in NZ
A new financial advisory firm-run KiwiSaver scheme is set to launch with former AMP Capital multi-asset CIO Sean Henaghan in charge of investments.
Henaghan, well known in Australia for his 15 years at AMP Capital, was an ex-pat Kiwi stranded back home last year under covid-19 border restrictions. He returns to active duties at Aurora Capital, based in Auckland.
Aurora Capital is the funds management arm of Aurora Financial, a financial adviser provider (FAP) headed by Simon Rolland. Henaghan owns about half of Aurora Capital, with the remainder under the control of Rolland and/or Aurora Financial associates.
Aurora Financial, which has more than 60 advisers under its licence, has just registered its own KiwiSaver scheme backed by the Implemented Investment Solutions (IIS) compliance machine.
According to the Aurora KiwiSaver statement of investment policies and objectives (SIPO), the scheme will initially offer three portfolios – tagged as conservative, growth and ‘climate change’ funds – as well as the ‘RetirementPlus’ option that mixes the fund options according to an age-based risk-weighting formula. Fees range from 1.25 per cent for the conservative fund to 1.5 per cent for the growth and climate options – including a 0.25 per cent advice fee.
The Aurora conservative and growth funds target returns of inflation (as measured by the consumer price index) plus 2.5 and 4 per cent, respectively, following standard asset allocation procedures. Mint Asset Management has been appointed as underlying manager for the Aurora conservative and growth funds.
While the Aurora Climate Fund also has a CPI plus 4 per cent return target, the strategy – split about 70/30 between global equities and international fixed income – follows an explicit environmental, social and governance (ESG) agenda with a range of exclusions and tilts to companies expected to have a positive impact on the planet. (However, Aurora applies ESG principles across all portfolios.)
The fund “invests in a combination of active and passive ETFs with a core exposure to highly ESG rated global companies combined with satellite exposures to thematic climate related companies”, the Aurora SIPO says. “The fixed income exposure is a combination of US$ inflation linked bonds and global green bonds.”
Henaghan said last week (July 1) that the Climate Fund would initially gain exposure by investing through BlackRock ETFs but the strategy could evolve over time as Aurora built scale. “This is just the beginning of the journey,” he said.
Aurora, which starts with zero funds under management, marks a “return to the coalface” for Henaghan, who previously managed A$120 billion in multi-asset portfolios for AMP Capital from Sydney where he had lived with his family for nearly 20 years.
Henaghan moved to Australia in 2002 with the old Watson Wyatt asset consultancy (now Willis Towers Watson), which he had joined in NZ. He headed up Asian manager research while also doing a lot of consulting work. He was headhunted to join AMP in 2005 to internalise the firm’s multi-manager ‘Future Directions’ strategy. He formally resigned from AMP Capital last September at the end of a 15-month ‘sabbatical’.
Henaghan was in NZ visiting family when the COVID-19 crisis closed the exit route to his former base in Australia, triggering a sea-change moment for the high-flyer. After considering prospects of a return to Sydney, he decided to remain there. He first met Rolland last September before launching into business with the financial advisory entrepreneur just three months later.
“It’s amazing to think that in less than 12 months I’ve moved from AMP Capital to a start-up,” Henaghan said. “But it’s great to be working closely with advisers, administrators, custodians and brokers – it makes me realise how far away from the coalface I was at AMP.”
The Aurora KiwiSaver scheme will, of course, be distributed firstly via the group’s network of over 60 advisers operating under the FAP licence.
Henaghan said the arrangement enabled Aurora to build KiwiSaver portfolios modeled directly around their clients’ needs. The Aurora client base tends to be reasonably “homogenous”, he said, with relatively simple portfolio management needs.
While many KiwiSaver providers have distribution arms (ranging from banks to asset managers), the Aurora scheme is the first to emerge entirely out of a purely financial advisory business.
Founded in 2016, Aurora has quietly built an empire of 60-odd financial advisers, sourced mainly from the life insurance and mortgage sides of the industry. However, the group has also accrued a reasonably large KiwiSaver book with about $95 million in assets under management, according to the Aurora website.
Currently, Aurora lists Generate as a KiwiSaver partner but it is understood the group has worked with others in the past including NZ Funds.
The Wellington-based IIS, which already operates a KiwiSaver scheme under its subsidiary InvestNow brand, acts as fund-host for the Aurora product. IIS has appointed Public Trust as supervisor and MMC for registry and administration.
Henaghan said the Aurora KiwiSaver would open for friends and family first before opening to the wider market later in July.
– Investment News NZ
