The $12 billion Workcover Authority of NSW fund is understood to have embarked on a major restructure of its investments, including the replacement of five out of its eight Australian equities managers.

It is believed the fund has been concerned about over-diversification in its equities portfolio, and thought the active managers were adding insufficient value for their fees. As part of the changes, Workcover will also reduce the proportion of its total equities in Australia from 50 per cent to 40 per cent, with international accordingly being increased from 50 per cent to 60 per cent of total equities. And it is thought the fund will be making smallish allocations to infrastructure and commodities as part of its review, with advice from Watson Wyatt. It is thought that these new investments will provide similar returns to inflation-linked bonds. The active managers to be replaced are GMO, Lazard, Dimensional, Challenger and a small-cap mandate. They are being replaced with a core holding in passive and semi-passive equities. It is understood that the fund and its adviser, Watson Wyatt, believe that there is a better chance of finding alpha in markets outside Australia in the current climate and with current valuations. Michael Block, the general manager of Workcover’s investment division, declined to comment on speculation about the restructure.