Visual:
How we select investment managers

Audio:
Hi, I'm Del Hart, Head of External Investments and Partnerships at the NZ Super Fund.

I'm going to be talking about how we select our investment managers.

We have an internal investments team here at NZ Super and our preference is to invest directly.

But where we lack in-house capability or are too far removed from an investment opportunity external managers make sense.

An example is natural catastrophe reinsurance. We lack in-house expertise here therefore we have two external asset managers for this opportunity.

Visual:
Overview of Portfolio

Audio:
Our portfolio consists of investment mandates managed by approximately 30 investment managers around the world representing a wide range of investments.

Our process for appointing and monitoring these managers is extremely rigorous, because we are investing on behalf of the New Zealand taxpayer.

Visual:
Fewer and deeper manager relationships

Audio:
At any given time we are talking to a lot of prospective managers, however our preference is to have fewer and deeper manager relationships.

There are several benefits from this approach:

• firstly improved risk management, through a broader and deeper understanding of the manager's operations and investment process
• secondly, better portfolio management from higher confidence in the underlying drivers of the investment opportunity, and
• lastly, mutually beneficial partnerships where we can learn from each other - an important part of our investment process given we are investing globally from New Zealand.

Visual:
Our conviction framework

Audio:
We have developed a framework called our conviction framework which helps us assess the capability of a manager - this is how it works.

Visual:
A diagram showing the conviction framework displayed as a table with the heading "Approach: Capability is assessed for each factor". The table has four columns with the headings 'Factor', 'Active', 'Passive' and 'Score'. In the factor column there are eight factors listed: Viability, Trust, Risk awareness, People capability, Process capability, Structure and focus, Opportunity match, and Performance. Active and passive columns contain ticks and crosses, and the score column contains a series of circular shapes of varying colours on a spectrum of red, yellow, green and light green. Each row has different information reflecting the factor.

Audio:
Our conviction framework consists of 8 factors:

• Viability
• Trust
• Risk awareness
• People capability
• Process capability
• Structure and focus
• Opportunity match, and
• Performance

I won't go into detail about each factor here, but more information is available in our Externally Managed Investment Policy on our website.

No matter how impressive a manager looks on paper, we wont appoint a manager unless they score highly on each of these 8 factors.

Visual:
Responsible investment

Audio:
We also pay close attention to manager's awareness of environmental, social and governance factors relevant to their investments.

This is consistent with our investment belief that a responsible investor must have concern for environmental, social and governance factors, because they are material to long-term investment performance.

Visual:
Ongoing conviction

Audio:
It is important to appreciate that conviction doesn't end once we appoint a manager. We definitely don't take a set and forget approach to these investments.

We review each manager formally on a quarterly basis. We meet with them in their offices at least once a year, and in reality each time we meet or speak to a manager we're updating our conviction view.

This is to ensure that each manager continues to meet the standards we believe are necessary for investing on behalf of current and future generations of New Zealanders.

Visual:
Logo for NZ Super Fund, Te Kaitiaki Tahua Penihana Kaumātua o Aotearoa

For more details visit www.nzsuperfund.co.nz