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 CIO role as South Pacific aims for co-investments
David Brown, an experienced investment manager and fund CIO, plans to move from Melbourne to the idyllic island of Rarotonga for his new role, COVID restrictions permitting. He started this month as CIO of the NZ$189 million (A$176 million) Cook Islands National Superannuation Fund – a new position.
A special focus of the position will be to continue the plan by some of the smaller funds of the Pacific region to work more closely together on investments to leverage combined scale and help further regional development. The plan has recently gained the support of the World Bank and the Asian Development Bank (ADB).
Before a short stint at Christian Super last year, Brown was the CIO of the PGK5.4 billion kina (A$2 billion) Papua New Guinea ‘nasfund’ for three years and before that spent six years at VFMC where he ran the manager’s private markets program. Prior to that he was a senior portfolio manager at QIC in Brisbane. A native of New Zealand, Brown also spent most of the 1990s in the UK, becoming an investment manager at Standard Life.
He said that he found the commute between Port Moresby and Melbourne “pretty tough” during his time at the PNG fund and was looking forward to moving to Rarotonga with his wife Gillian, a school teacher, when travel restrictions allowed it. Their university-age children would be remaining in Melbourne.
Brown was approached about the job while he was involved in a project last year to assist the various South Pacific funds in their discussions around co-operation with investments. Damien Beddoes, the Cook Islands fund’s chief executive, is one of the drivers behind the co-operation strategy, which has led to their future-focussed approach. He would now have more time to concentrate on strategic issues for the fund, Brown said.
PNG
Beddoes said that the fund was at a stage where they needed to lay the foundations for the complexity of the future. It was to do with “real governance” rather than “playing catch-up”.
According to Teik Heng Tan, principal of the i3 investment events group, which hosts an annual conference for South Pacific funds, the idea about better co-operation between them is not a new one but it has been given more impetus by the support of the World Bank and ADB.
One of the obstacles they have faced, Teik said, was the convertibility of the local currencies. The small nations are protective of their foreign currency holdings – the obvious means of exchange with international co-investments – but this is something the two government-backed banks should be able to facilitate.
With respect to the Cook Islands fund’s current investment strategy, the asset allocation is set by the board and trustee (a separate entity) in consultation with Russell Investments, with whom there has been a long-standing relationship. All the funds are managed by Russell’s multi-manager strategies. Brown said there would be a review of investments as well as processes in the normal course of his role. “It’s a well-managed fund with good performance,” he said. “There are no restrictions on investments and no requirements to invest domestically.”
There are three options: a conservative default option, which has returned 9.15 per cent a year since inception in 2010, a less conservative balanced option, started in 2015, with an annual return of 10.31 per cent over the five years and a growth fund, also started in 2015, with an average annual return of 11.71 per cent. The fund, which celebrated its 20th anniversary last year, reports in NZ dollars.
The administration of the 12,600-member fund, more than 40 per cent of whose accounts are inactive, is by Link Group’s NZ office, which uses a different system to that used by that firm’s big Australian super fund clients.
Brown said he loved his time in PNG, particularly enjoying his relationship with the chief executive, Ian Tarutia, and the fund’s staff, several for whom he acted as mentor. “I was very pleased that two of the people I had mentored were able to take over my job when I left,” he said. “I stayed in touch with them and it will be good to work with them again… I want to train up some of the locals again too. It’s a part of the world I really enjoy and a culture I love.”
He loved PNG except for one brief time, however, when he was arrested and charged with fraud, spending five hours in a Port Moresby gaol and several weeks of wrangling before the matter was thrown out of court. The alleged fraud centred on his request for an audit of accounts from another fund in which nasfund had invested about PGK100 million. The investee fund had argued that a unitholder seeking information was ‘interference’ and therefore illegal under the trust deed, but the judge didn’t see it that way.
Rarotonga is the largest of the 15 islands in the Cook Islands group and home to its capital of Avarua. It was also considered home to the historic departure point of the ‘great fleet’ of seven canoes which had voyaged from Tahiti, around 1350, and settled in New Zealand as the Maori people’s ancestors. More recent studies, however, support the belief that people from East Polynesia had set off from different islands at different times, with the first canoes arriving in New Zealand in the 1200s.
