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Milford suspension appropriate: NZSF

The NZ Super Fund says suspension rather than termination of Milford Asset Management’s  mandate was the appropriate action for it to take.

Friday, May 1st 2015, 6:00AM 1 Comment

by Susan Edmunds

Last month, Milford had a $281 million mandate New Zealand active equity mandate suspended while it is investigated for alleged market manipulation.

NZ Super Fund has been managing the funds internally since.

Spokeswoman Catherine Etheredge said the investment management agreement would remain in place with Milford. “We continue to monitor the situation and update our view of the manager and underlying investment opportunity over time. The manager does not receive fees during the suspension. We like to have the flexibility to dial our investment mandates up and down, while keeping the contractual arrangements and relationship ‘infrastructure’ in place. This means we can respond quickly to changing circumstances, such as a deterioration in a underlying investment opportunity.”

She said suspensions were agreed on after considering what the Guardians of New Zealand Superannuation thought of the manager, the investment opportunity, how the opportunity should be accessed and the flexibility of the contract.

“The situation with Milford is unusual. We want to ensure any decisions we make about our manager relationships are based on good, accurate information. Given that the FMA’s investigation has not been concluded, and that the facts of the matter are not clear, a suspension as opposed to a termination was appropriate.”

FMA spokesman Andrew Park said the investigation into Milford did not have long to run.

Tags: Market Manipulation Milford Asset Management NZ Super Fund

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Comments from our readers

On 1 May 2015 at 1:16 pm Another AFA said:
I wonder when the Super Fund was notified of the Investigation by the FMA? Would they have to have given a certain number of days notice of the suspended mandate? Hmmm...

Putting that to one side, in my opinion, the investigation has been handled poorly by the authorities and has not promoted an informed market nor investor confidence. Questions need to be asked of the FMA and a thorough review of their process.
My immediate thoughts and questions include:
1. Why has this process taken so long?
2. What could have been done to inform the market during the investigation?
2. What implications are there for Financial Advisers or Investors who make further contributions to a Milford KiwiSaver Scheme or unit trust while an investigation is unresolved?
3. Why did the FMA not immediately issue a notice that the manger was under investigation (instead market rumors eroded investor confidence)
3. I think the FMA should have announced the investigation and declared when the investigation would be concluded.
4. FMA should also have issued a potential course of action, as an example: An investigation will be held, no client funds affected, the fund remains open for current and new investors with no consequences, Milford have paid a Security Bond and if a breech of rules is determined could result in a fine, ongoing monitoring, both or something else.

Clear and effective communication. Come on FMA, it's not that hard.

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