Capacity issues stifle managers
The NZ Super Fund has released a new white paper explaining how it evaluates the capacity of active managers in the New Zealand share market.
It says fund managers with more assets under management are increasingly unable to implement their investment strategy and add value because the New Zealand equities market is small and relatively illiquid.
Capacity could be defined in three ways – the amount of AUM beyond which the strategy was no longer able to achieve its investment return objective, the amount that maximises total value-add and the amount that reduces alpha and total value-add to zero.
If the manager is invested in a particular equity and has more to sell than the market can readily absorb, the stock’s price will likely drop.
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