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.
NZ Super trends up with almost $1bn of new mandates
The now $74 billion NZ Superannuation Fund’s (NZS) biggest new mandate went to London-based quant outfit Florin Court Capital, which picked up almost $400 million for its trend-following vehicle.
“We see the investment, alongside a trend-following mandate we have given to external manager ManAHL as a useful way of mitigating tail risk in the fund’s portfolio,” the NZS release says.
The fund appointed ManAHL late in 2022 as its first allocation to ‘trend’ – a quant-intensive investment method (sometimes referred to as commodity trading advisers, or CTAs) designed to profit from market momentum in either direction. Florin Court was founded by in 2015 by former ManAHL portfolio managers.
But as well as dipping into highly technical trading strategies, NZS has also invested in more down-to-earth assets of late, committing US$150 million to Domain Timber Advisors, which specialises in the “sourcing of non-industrial, degraded or under-utilised” US timberland to achieve “both economic and environmental uplift through property improvements and the ultimate aggregation of the acquisitions”.
Other new investments on the NZ Super menu include: US$125 million earmarked for a fund managed by Ara Partners, which invests in “industrial decarbonisation” assets; a US$145 million commitment to the AJ Capital Partners Field & Stream Hotel Fund I that deals in “aggregating, repositioning and rebranding limited service” US hotels. (NZ Super runs a similar local hotel strategy in-house); lining up US$75 million for the Sands Capital Life Science Pulse Fund III – a growth equity play in “innovative life sciences businesses”; and a further US$20 million co-investment (along with Columbia Capital) into a StepStone venture capital project labelled ‘Tract’, which invests in land slated for “hyperscale data centres”. NZ Super first invested in a StepStone fund in 2021.
The update also notes the fund’s residential property development joint venture with Classic Group “broke ground” on three new NZ regional sites that will – in combination with a fourth yet-to-be-started project – “deliver 2,500 homes”.
Since June last year, NZS has also discarded two mandates: an almost $800 million investment in a BlackRock merger-arbitrage fund (first allocated in 2016); and, about $410 million (awarded in 2018) in another merger strategy managed by Neuberger Berman.
The investment tweaks come amid a busy period for the NZS, which just welcomed aboard a new chief, Jo Townsend, while long-time CIO, Stephen Gilmore, jumped ship to assume the same role at the Californian giant pension fund, CalPERS.
