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.
Israel lobby tries to halt NZ Super exclusions
The Israel Institute of NZ lobbied to halt the exclusion of certain banking stocks from the NZ Superannuation Fund’s portfolio this year, according to recently released documents.
In an Official Information Act (OIA) request on April 12, the local Israel association asked for confirmation the NZ Government’s largest super fund had told underlying managers that the decision to sell down five Israeli banks this January was “the subject of challenge by us and that no action should be taken until that is resolved”.
However, NZ Super sold down its holdings in the five institutions – First International Bank of Israel, Israel Discount Bank, Bank Hapoalim, Bank Leumi and Bank Mizrahi-Tefahot – on February 14 this year after deeming that their lending to housing developments in the occupied Palestinian territories represented a breach of the fund’s responsible investment framework.
NZS held the five stocks through passive mandates with underlying managers AQR, BlackRock, Northern Trust and State Street. At the time of sale, the now NZ$57 billion (A$60 billion) fund owned about NZ$6.7 million in shares across the five banks, although previously the NZS had a NZ$20 million exposure to Bank Leumi alone in a Northern Trust factors portfolio.
The NZ Israel Institute also suggested the underlying managers and custodians should’ve queried the fund’s sell instructions as “there were a number of red flags”, asking the NZS: “Did any of the managers report to you, as the principal, that they had a potential conflict between their contractual duty to execute a valid and proper instructions [sic] and their duty to exercise judgement in connection with the instructions?”
Asset owners can tinker with mandates as per their own investment needs, as the NZS implied in its reply: “We do not accept the premise of the question (i.e. that there was a duty in the nature you envisage), but confirm we received no such report.”
The Israel Institute queries were among a string of five OIA requests in April regarding the NZS decision to exclude the five banks, which reveal intense lobbying from parties on both sides of the issue. As well as pressure from well-known NZ activist, John Minto, the OIA documents include a long-winded legal option claiming the NZS responsible investment framework is “incomplete and inadequate and arguably invalid”.
The Israeli NZ ambassador also requested a meeting with NZ Super chief executive, Matt Whineray, to query the exclusion, the documents show.
And in an email with the subject-line “Shame on YOU”, Whineray faced the ire of a [name redacted] correspondent with: “Your decision of divesting from Israeli banks is a disgrace and confirms what the whole world suspects: this new form of anti-Semitism is spreading more than covid…”
NZ Super inevitably cops flak from all angles on controversial issues such as the currently unresolved Israel/Palestine conflict. But a court ruling this March gave weight to the fund’s responsible investment process. The Auckland High Court decision rejected a call by activists to enforce a judicial review on NZ Super over investments related to phosphate mining in Western Sahara.
