New Zealand Superannuation Fund said Monday it hired Northern Trust Asset Management to manage the NZ$30.3 billion ($22 billion) sovereign wealth fund’s first allocations to factor-based equity strategies.
New Zealand Super awarded allocations of NZ$300 million each for two global equity strategies — one, a value-focused factor strategy and the other, a low-volatility factor strategy, said Catherine Etheredge, an Auckland-based spokeswoman for the fund.
Funding will come from existing passive market-cap-weighted global equity allocations Northern Trust is managing for New Zealand Super, according to a news release Monday.
As of the June 30, 2015, the close of the latest fiscal year for which New Zealand Super has published manager-specific allocation data, Northern Trust was managing NZ$3.56 billion in passive global equity allocations for the fund, or roughly 12% of its NZ$29.5 billion investment portfolio at that time.
In a June 22 interview, Roland Winn, manager-investment analyst with New Zealand Super, said the sovereign wealth fund would move a “quite small” part of its passive global equity allocations to value and low-volatility strategies to start, but over the next 12 months or more factor-based strategies would grow to a “material portion of the portfolio.”
Ms. Etheredge said New Zealand Super’s investment team — which allocates away from the sovereign wealth fund’s passive, market-cap-weighted reference portfolio only when it has some confidence it can add value by doing so — considers the allocations to value and low-volatility strategies “a value-adding activity for performance reporting purposes,” even if both strategies are aiming to match, rather than exceed, their factor benchmarks.
Ms. Etheredge said the persistent nature of the value and low-volatility factors have left them at the top of the list of potential factor strategies New Zealand Super’s team believes can be exploited. And while “there will be times when (those factors) are over- and undervalued … we don’t believe that we can time these,” she said.
Bert Rebelo, Melbourne-based head of Northern Trust Asset Management for Australia and New Zealand, said combining key factors — as New Zealand Super has opted to do in allocating to value and low volatility — is a key to diversifying away the risk that any single factor could be overvalued at any point in time.
Both Mr. Rebelo and New Zealand Super’s news release predicted that factor-based strategies can deliver superior risk-adjusted returns.
