NGS Super has invested $500,000 in a social benefit bond run by Social Ventures Australia and is planning to launch a broader, more diversified ethical option for its members by early 2014.
NGS chief executive Anthony Rodwell-Ball said the new bond ticked all the boxes from an investment perspective, and he believes there’s a reasonable likelihood of the forecast returns for the bond being achieved.
“It’s gone through our governance screening process,” he told Investment Magazine.
“Now investment is risk, of course. The feature of this particular investment is that it is illiquid, there’s a seven-year illiquidity there, so what’s the premium for that? And we considered that.”
Rodwell-Bell said it was a very quick decision to make once the fund had heard about the bond in April. After a period of due diligence, within six weeks a recommendation to the investment committee was approved.
“We have to bear in mind that if this was a $50-million investment, we wouldn’t necessarily make it in six weeks because when you’re doing due diligence on a $50-million investment, the complexity of that is greater. This is comparatively simple, in so far as the history and what we looked at, not a lot of complexity, so we could make a quick decision,” he said.
Ethically focused option
The bond finances social services, injecting private capital into preventative community programs such as foster-care assistance. It’s a theme that Rodwell-Bell said resonates with the NGS membership base of more than 100,000 members, who come from the credit union, mutual sector and not-for-profit organisations.
The Uniting Church provided $1 million as a seed investor, Rodwell-Ball said, which gave the fund comfort on the decision.
“And the credit risk involved here is relatively minimal given the size of the Uniting Church’s balance sheet.”
Rodwell-Ball said the challenges of constructing an ethically focused option is finding good quality assets in which to invest.
“We’ve looked at micro-finance for argument’s sake. There’s another socially responsible investment stream, but the challenge with it is it’s typically expensive. The MER on micro-finance options is really quite unattractive. So you’ve got to balance the ethical investing with a recognition that you can’t take a per cent more off your members’ returns by paying unreasonable management fees.”
Rodwell-Ball added that it’s an issue of lack of scale, noting the challenge of this sort of venture becoming an asset class in its own right.
“That’s very ambitious. For it to be an asset class, you need to have scale, you need to have billions on offer in the market,” he said.
The new option will not be a default option, but is targeted at those with a strong social conscience. Currently, the $5 billion fund offers a green shares option.
“That’s purely equities and what we wanted to do is to say, we want to give a more diversified, balanced ethical option that will have shares, local and international. It’ll have alternatives… micro-finance if we can find something that ticks the box in terms of cost structure. And other appropriate ethically screened investments.”
|After Hughes, investment’s in house|
|NGS Super plans to appoint an inhouse chief investment officer following the departure of investment counsel Tim Hughes, who is moving on to independent board roles in funds management.Hughes was an investment adviser to the super fund for seven years on a part-time basis. But the increased size and scale of the fund has meant it now requires a full-time chief investment officer, according to NGS Super chief executive Anthony Rodwell-Ball.“We have already begun our search and selection process for this new role,” he said.“NGS Super is grateful for the hard work, professionalism, innovation and dedication that Tim has shown since the commencement of his relationship with the fund.”|