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Appendix 1

Note: all findings are as of June 2014.

Provider Investment Philosophy and Style Investment Process Risk Management Benchmarks
AMP
  • Assumption that the market is not efficient
  • Pursues active asset allocation across asset classes
  • Multi manager approach
  • Belief in each manager having own philosophy and style and adding value
  • Each fund has a specific investment objective and invests in different types of assets
  • Portfolio set up and process depends on managers approach

Stated risk factors

  • Interest rate risk
  • Currency risk
  • Liquidity risk
  • Credit risk
  • Investment sector risk
  • Operational risk
  • Regulatory uncertainty
Undisclosed
ANZ
  • Belief in active management
  • Outperformance measured against a particular index or market
  • Undertakes active asset allocation depending on how the manager perceives / believes each asset class' likelihood to outperform
  • Focus is given to efficiencies and cost control
  • Assets of underlying funds either managed in-house or by chosen external managers
  • Allocations adjustment done at asset class level
  • International equity assets for the Conservative Fund passively managed
  • Currency risk actively managed
  • Cash flow actively managed
  • Varying the asset class mix for each fund
  • Employing investment professionals who have successfully applied a consistent investment strategy over a number of years
  • Hedging currency exposure for foreign fixed interest assets, foreign listed property assets, and some foreign equity  assets
  • Counterparty risk measurement

Stated risk factors

  • Asset class risks
  • Currency risks
  • Derivative risks
  • Investment management risks
  • General risks
Undisclosed
ASB
  • Long term investment horizon (Short term is considered up to 5 years)
  • Principally an index tracking or passive strategy
  • Aims to deliver returns that closely track those of a market  index (or indices)
  • Recognise the lower management fees in passive management
  • Use of underlying investment managers
  • Cash is managed using an active management style with cash funds being actively managed
  • Non-cash asset classes are managed using an index tracking investment management style
  • Exposure to securities in an index gained by holding all or a representative selection of the securities in the relevant index
  • Use of derivatives to gain security exposure
  • Diversification across markets, except in funds that offer exposure to a single market
  • Foreign exchange risk being actively managed by using derivatives
  • Applying credit risk limit framework
  • Choosing tracked indices that are widely diversified

Stated risk factors

  • Interest rate risk
  • Derivative risk
  • Exchange rate risk
  • Credit risk
Disclosed by asset classes
BNZ
  • Fund management outsourced with Russell Investments mandated for investment management
  • Active asset allocation strategy based on market movements and relative attractiveness of asset classes
  • Taking into account the ability to invest or divest when valuing investment
  • Underlying fund of funds with active management
  • Investments by holding assets directly or investing in other investment funds
  • Investment management largely outsourced with relatively small in-house team
  • Do not take currency risk outside Australasia
  • Using hedging instruments against other currency risk

Stated risk factors

  • Investment asset risks
  • Currency risk
  • Derivative risk
  • Operational Risk
  • Product Risk
  • Legislative and regulatory risk
Undisclosed
BT Funds (Westpac)
  • Belief in adding value both at asset allocation level  and security selection
  • Multi-manager approach
  • Security selection carried out by specialist investment managers
  • Investment process focuses on high quality, insightful research
  • Disciplined investment management (eg, Rebalancing)
  • Seeking diversification benefits across asset classes, securities and investing styles

Stated risk factors

  • Market risk
  • Fund manager risk
  • Credit risk
  • Derivatives risk
  • Concentration risk
  • Liquidity risk
Undisclosed
Fisher Fund
  • Belief in longer investment horizon
  • An active manager
  • Adding value through economic research
  • Asset allocations changed based on market movements and risk reward
  • Use of specialist fund managers and utilising multiple managers for different type of funds
  • Gaining exposure to asset classes by either: buying the assets directly and investing in other managed funds
  • Minimum quality criteria - an investment must meet before it is included in a portfolio
  • Purchasing of derivatives to gain security exposure
  • Fund of funds model with active management
  • Gaining  exposure to market sector by blending funds/managers
  • Foreign currency risk fully hedged for international fixed interest
  • Liquidity and cash flow requirements are taken into account in investment process - liquidity weighted portfolios
  • Currency hedging
  • Business continuity plans and staff retention strategies
  • Counterparty creditworthiness analysis

Stated risk factors

  • FX and interest rate risk
  • Liquidity risk
  • Operational risk
  • Key personnel risk
  • Legislative and regulatory risk
  • Counterparty risk
  • Derivative risk
Disclosed by fund types
Grosvenor
  • Actively allocates across asset classes
  • In-house investment team
  • Uses both domestic and international external fund managers
  • Belief in benefits of diversification
  • Actively adding value at asset classes level as well as security level
  • Fund invested over  a range of different maturity dates
  • Emphasis on risk management
  • Having a minimum credit risk criteria to mitigate credit risk
  • Currency hedging used to manage FX risk

Stated risk factors

  • Market risk
  • Manager risk
  • Regulatory and tax risk
  • Product specific risks
Disclosed by fund types
Kiwibank
  • Belief in longer investment horizon not short term punts/bets or investment fads
  • Active management at both asset class level and security selection
  • Largely an in-house model but use managed funds to access unique markets
  • Favours global markets over NZ - diversity, liquidity and the fact of NZers having majority of their assets already in NZ
  • Engaging with customers for assessing risk appetite and hence investment choices
  • Investment governance committee oversees and reviews the firms activities
  • Fund's investment portfolio structure reflecting underlying investment strategies
  • Combination of active and passive management for the Default Investment portfolio
  • On-going evaluation of external managed funds
  • Works on a weekly investment cycle
  • Uses derivatives to hedge against currency
  • Emphasis on diversification

Stated risk factors

  • Asset class risk
  • Market risk
  • Currency Risk
  • Derivative risk
  • Liquidity risk
  • Legislative and regulatory risk
  • Credit risk
  • Tax risk
  • Administration risk
Undisclosed
Mercer
  • Multi-manager investment approach
  • Belief in fund managers specialisation in their particular field
  • An active research based manager selection process - manager evaluation
  •  Seeks diversification across asset classes as well as geographic locations
  • Active management
  • Investing in a number of different types of investment in each asset type
  • Disciplined approach to the management of risk
  • Rebalance investment mix based on market analysis and research
  • Investing with a number of different investment managers who can be changed quickly
  • Actively monitor and liaise with governments and regulators
  • Stated risk factors
  • Investment option and asset class risk
  • Management risk
  • General risks
  • Legislative and regulatory risk
  • Taxation
Undisclosed

Milford*

(for comparison only as a
non-default provider)

  • Emphasis on capital preservation with capital growth for investors comes second
  • Fully in-house management model
  • Highly active approach
  • Belief in fundamental analysis and extensive entity level research
  • Selection process aiming to identify investments which have prospects that have not been recognised by other investors
  • Client focused and committed to governance and transparency
  • Emphasises Investment Committee's role
  • Security selection focusing not only quantitative - financial prospects and valuation but also qualitative - corporate strategy, management and governance
  • Disciplined entity visit programme and carry out detailed research and visits
  • Using derivatives to establish long as well as short position
  • Able to take leveraged position
  • Currency risk actively managed
  • Actively managed the selected of assets and ongoing monitoring of each investment
  • Monitor changes in global and local environments
  • Stated risk factors
  • Personnel and management risk
  • Entity risk
  • Currency risk
  • Interest rate risk
  • Liquidity risk
  • Counterparty risk
  • Derivative risk
  • Country concentration risk
Disclosed by fund types
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