NGS Super is deciding whether it should invest less money in high-return seeking assets in 2012. SAM RILEY reports.
It’s not every day that the head of a superannuation fund investment committee ponders how the 300 million people in China that hold drivers licenses will use motor vehicles.
But this is one of the questions asked by Stephen Mathwin, NGS Super investment committee chair and trustee director, as the $4 billion fund aims to increase its exposure to Asia’s emerging markets.
“We have a tilt towards emerging markets, and concentrate on the Asian emerging markets rather than European emerging markets, which has been a major positive,” Mathwin says.
He expects 2012 to be a difficult year but says the fund remains committed to emerging markets – particularly China. NGS Super accesses the China through two A-class share funds and a $20 million investment with private equity firm Qi Ming, which focuses on companies in the health, technology, and retail e-commerce sectors.
In 2011, Mathwin was “kicking the tyres” in China and looking at Qi Ming investments, such as a car hire company that ran 35 cars three-and-a-half years ago and now manages 5000 cars from 85 outlets in 35 cities.
NGS Super’s other private equity investments in emerging markets are made through the Siguler Guff BRIC Opportunities Fund II, a fund-of-funds that in 2007 had $893 million in committed capital from investors. It invests in the so-called “BRIC” countries: Brazil, Russia, India and China.
NGS Super aims to increase its exposure to India. Tim Hughes, investment counsel to the fund, and Ben Squires, its manager of investments and finance, recently returned from a fact-finding trip to India. Anthony Rodwell-Ball, CEO of NGS Super, says the fund is looking at a wide range of potential investments in India and is likely to commit funds in the next six to 12 months.
“India appears to be largely uncorrelated with the West and the rest of the East. It is fairly self-contained,” Rodwell-Ball says. “As a result of that, if you find a good investment you have a very good diversifier.”
The fund will re-examine its medium-term asset allocation in February, which, despite ongoing uncertainty on equity markets, favours growth assets. Rodwell-Ball says that India could potentially diversify these growth investments.
The fund’s diversified fund had lost 3.96 per cent in the financial year to November 30, 2011. In the past five- and 10-year time periods, the diversified fund achieved a 2.07 per cent and a 5.46 per cent return each year.
The fund’s medium-term asset allocation for its diversified fund invests 75.5 per cent in growth assets and 24.5 per cent in defensive assets. The long-term strategic asset allocation is a more conventional, investing 70 per cent in growth assets and 30 per cent in defensive.
The medium-term asset allocation for growth assets in NGS Super’s diversified fund is the following:
|ASSET CLASS||PORTFOLIO WEIGHTING|
|Australian equities||37.5 per cent|
|International equities||22 per cent|
|Private equity||3 per cent|
|Alternative investments||2 per cent|
|Listed property||1 per cent|
|Growth property||1 per cent|
|Infrastructure||9 per cent|
Mathwin says the upcoming review will focus on whether the fund should scale back its exposure to growth assets in the medium term.
“We really have to look at whether we have our growth-defensive split right because we are different from most of our peers,” Mathwin says. “With much of the economic news becoming gloomier and gloomier, we will look at whether we need to take a bit more risk off the table.”
In the medium-term, the fund will continue to invest heavily in equities, with Rodwell-Ball saying that much of the negative expectations about the year ahead have already been factored into stock valuations.
Last year, NGS Super conducted a “mini-review” of its equity managers and made a number of changes. This resulted in the fund terminating Integrity Investment Management and placing the proceeds with Cooper Investors, another fundamental value manager. NGS also replaced Solaris Investment Management with Schroder Investment Management.
“We spent a lot of time, a couple of years ago, revamping our Australian equities portfolio and we concentrated on boutiques. With our large-cap managers, we went to managers that could assure us with ongoing capacity,” Mathwin says.
The fund chose a number of boutique equity managers with contrasting styles in its Australian equities portfolio. These styles cover value, growth, small-cap, micro-caps, natural resources, contrarian and style-neutral approaches. Managers’ adherence to their chosen investment style is continually monitored and reported to the committee on a quarterly basis, says Mathwin.
In the past 10 years NGS Super’s Australian equities portfolio has returned 9.52 per cent each year, compared to the 7.9 per cent return of its benchmark, the ASX 300.
The fund chooses boutique equity managers and has shied away from complex and potentially opaque investments. For this reason, NGS Super does not invest in hedge funds.
NGS Super has successfully merged with other funds, including Cue Super in 2011. Its merger with the Uniting Church Superannuation Plan is scheduled to be completed later this month. Mathwin says the fund aims to grow to a size of between $5 and $10 billion in coming years.
While the opportunities created by larger fund size remain attractive, such as acquiring substantial stakes in unlisted assets, Mathwin says NGS Super’s investment approach focuses on preserving liquidity. More than 70 per cent of its portfolio is invested in liquid assets, and the monitoring of liquidity is a key part of the investment committee’s deliberations.