After switching to use a reference portfolio (RP) model for investing two years ago, New Zealand Superannuation Fund is now refining its approach to foreign assets.

The state-run retirement fund, with NZ$20.17 billion ($16.4 billion) in assets, shifted from a traditional strategic asset allocation approach to using an RP. This allows it to be more flexible and opportunistic in its portfolio management, says Matt Whineray, general manager of investments.

Auckland-based NZSF has several current areas of focus in this regard. One is its work on developing its “strategic tilting programme”, which Whineray says will help to broaden the range of markets the fund can invest in, and take a more “granular” approach.

The aim is to be able to take views at market level, not just regionally. However, “it will be some time before we implement equity or debt tilts for specific countries”, he tells AsianInvestor.

The fund is also looking at how to access European markets “due to the dislocation there”, he notes. “We’re looking at potential investments that might emerge in areas like distressed assets and fixed-income arbitrage. We can access some of these internally.”

A third area of focus is NZSF’s diversification into insurance-linked securities. “We already have put money into catastrophe bonds and life settlements,” says Whineray. “Such specialist investment will be generally done out of house.”

Moreover, the fund is active in rural New Zealand assets, but is also looking at international opportunities in this space. But it’s not so easy to source these investments, he adds.

Meanwhile, NZSF has been doing “quite a lot of work” in the past year on determining the best way to access the emerging-market risk premium, notes Whineray. "We did an exercise a while ago to work out our actual exposure to EMs – not just our dollar exposure to specific EM countries."

For example, the fund's biggest single-asset exposure is its 40% of Kaingaroa Forest Holdings in New Zealand. That makes up about 5% of the fund, and the key economic exposure of this investment is growth in China, which uses the wood for construction and other applications

As for NZSF’s established investments, Whineray believes that on a long-term view stocks are relatively cheap, so he is tilting towards equities and away from fixed income. “We also feel prices are quite high for some core infrastructure assets and domestic farmland.”

*See the upcoming (December) issue of AsianInvestor magazine for an extended interview with Matt Whineray about the NZSF’s approach to portfolio management.