Big mandates force big questions

A chance to pick up a big new investment mandate is forcing many New Zealand fund managers to address capacity issues, a sector analyst says.

Thursday, February 19th 2015, 6:00AM

by Susan Edmunds

Mercer has released its latest review of the New Zealand equity sector, based on meetings with nine investment teams from local active managers.

AMP Capital has decided to close its equity management capability and is looking for a third-party manager. A NZ Super Fund RFP to replace the mandate formerly held by AMP is understood to be out in the market to all institutional fund managers too. The timing will roughly coincide with AMP’s search for a manager.

AMP’s transition to a third-party local manager is expected to happen by the end of March. AMP has about $700 million in active NZ equities.The size of these mandates is not known with precision, but each is expected to be near or above $250 million.

Mercer senior analyst David Scobie said fund managers have taken this as an invitation to update their capacity calculations.

“For fund managers at the bigger end of the scale that’s a catalyst to crunch the numbers and see what else they could take on. For small managers it’s not an issue, they’re happy to grow their business until such a time it does become an issue.”

Some managers would find a big mandate would “fill up their tanks”, Scobie said. For others, it would move them from the boutique end of the market to the middle of the range.

“We note that the level of spare capacity for highly-rated managers is relatively tight and, in some cases, managers are already closed off to new money. However, it is feasible that managers may attempt to develop creative solutions to the opportunities.”

Investment in Australia could be a pressure valve, Scobie said. “Australian equities are being used to an extent if managers are having difficulties putting more money into New Zealand equities, a natural place to go is Australian equities.”

He said a handful of newer fund managers had plenty of room to take on more money. “Some of the newer ones, Salt, Castle Point, Forte, they’re stablished but are developing their offering.”

There were a number of factors that could have contributed to AMP’s decision to shut its equities unit, Scobie said. It had been “soft–closed” to new clients for a number of years, staff turnover had been high, and a disinclination to invest in Australia had left it less diversified than its peers. He said the termination of the NZ Super Fund mandate had brought things to a head.

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