Asset allocation by peer review
Grosvenor has reviewed its KiwiSaver fund asset allocations after falling behind the pack on returns and has decided to follow other funds.
Monday, March 17th 2014, 6:00AM 
8 Comments
The company’s chief investment officer David Beattie acknowledged Grosvenor’s recent fund performance hasn’t been good and blamed it on taking a too defensive position with its asset allocation.
He said its managers had some concerns around markets last year and had taken a more defensive approach than other KiwiSaver managers.
This, he illustrated with international share numbers. Grosvenor had around 40% exposure while other balanced fund managers were sitting at 55%.
Beattie said KiwiSaver managers could not go out on a limb with asset allocations.
“We gave ourselves too much rope and nearly hung ourselves.”
He said Grosvenor still had good absolute returns but KiwiSaver members are focused on relative returns and are constantly checking how their funds are performing against others.
“They don’t understand the nuances [of investment management],” he said.
As a result Grosvenor has changed its approach. It has reviewed its long-term strategic benchmarks, and will “much more explicitly incorporate peer group asset allocation” into its decision making.
Also it will take “minimal active positions” and has also reduced its risk budget from 5% to 3%.
“We have to join that game for as long as we are comfortable.”
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Funny you should say that because there is a recent academic paper by three professors at the University of Oxford which looks at investment consultants recommendations and it concludes “we find no evidence that these recommendations add value to plan sponsors”. It’s by Tim Jenkinson, Howard Jones and Jose Martinez.
Regards
Brent Sheather
If Grosvenor have had a more defensive asset allocation and it produced lower returns in a rising equity market they have still performed their duty to unit holders - as long as the more defensive bias is communicated.
But if they base their future asset allocation on what everyone else is doing, regardless of their perception of market risk..... is this new strategy intended to benefit unit holders or shareholders?
The track record here doesn't appear to inconsistent with what has happened when other adviser groups have moved into running funds. Who was that fulla Morgan who had a crack at it? How did he go?
One wonders who David is referring to in his quote: “They don’t understand the nuances [of investment management]”
http://www.gipsstandards.org/resources/Documents/aimr_benchmark_report1998.pdf
There is also the issue of the fixed interest component. NZ versus global. It is easy to see where AON Russell is getting their long term return advantage. There is also the active, passive debate.
It also appears that returns do not matter as much as distribution to the majority of the public. One of the largest non default funds (bank owned) has the worst track record.
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“much more explicitly incorporate peer group asset allocation”
mean what I think it means? Does this mean that in future Grosvenor will check to see what the competitors are doing with asset allocation before deciding on their own? Why bother having their own decision making structure?
Isn't the next step for Grosvenor just to outsource everything to Onepath or AMP?