Personal finance editor Amanda Morrall interviews Matthew Goldsack.
Introducing: Matthew Goldsack, Head of Investment solutions BT Funds Management. Matthew joined BT in 2008 in his current role and before that was head of research for AXA for eight years.
Described as a "fund of funds" BT has under its control 12 underlying fund managers who are contracted to manage various assets that comprise Westpac's seven-strong suite of KiwiSaver products.
They include Boston-based MFS, Connecticut-based AQR, New York-based Trilogy, California-based Tradewinds, Schroders of Australia and Lazard, also of New York. BTZN Asset Management, another arm of BT, (BTNZ Asset Management) handles NZ assets.
Q)What's BT's relationship to Westpac?
A) BT Funds Management is a wholly owned subsidiary of Westpac New Zealand and manages over NZ$3 billion in wholesale accounts, mortgage assets, KiwiSaver investment funds, and other diversified funds. In terms of funds under management, Westpac is fourth largest KiwiSaver provider.
Q) Why so many managers and how are they different?
A) All of our managers are slightly different in their investment philosophy, approach and stock selection.
Q) What's the difference between BT Funds Management and BTNZ Asset Management?
A) The key distinction between us and BTNZ Asset Management is that all my team does is diversified fund portfolio construction.
A lot of time and effort across the team goes into top down macro economic research and forecasting. We spend a lot of time on our strategic asset allocation so our long-term policy setting and short term asset allocation.
Q)What criteria do you use for selecting fund managers given they are based offshore and are investing in international assets?
A) You want to have managers who are slightly different in their investment approaches and portfolio construction, idea generation, we spend a lot of time analysing skill levels and experience of the team, the people that make the portfolio and decisions and we then do a bit of quantitative analysis around blending them together.
We want to have an active approach across all of our KiwiSaver funds and within asset classes but we don’t want to have massive swings in our performance. We want good, consistent outcomes.
We’ll look at historical performance, that’s more for us to get a good conviction level about whether they are skill based or due to luck. So we’ll look at how they have performed through different parts of the cycle so we can get a good feel for how volatile they might be throughout different part of the cycles so we can get a good feel so how volatile they might be. Most of it is based on forward looking expectations.
Q) What if anything is unique about Westpac's KiwiSaver?
A) Having capital protected funds. It's a niche.
Q) How does it work and what's the objective?
A) The primary objective of the fund is to protect the member's initial investment provided they reamin invested in the fund until maturity date, whilst also providing investors with exposure to an actively managed portfolio f international and Australasian listed equities. Essentially the fund provides the best of both worlds; acess to sharemarket returns and if held to maturity, investors' initial contribution is protected from any falls. In general terms, capital protected investments tend to appeal to risk-adverse investors who also want the chance of potentially high returns.
Q) Is this like having your cake (low risk) and eating it too (with high returns)
A) Conventional portfolio theory contends that low risk and high returns are mutually exclusive qualities in an investment opportunity. The CPP plan challenges that thinking in that it provides Westpac clients with the chance to access potentially high returns while at the same time guaranteeing the original principal invested. The basic concept generally involves three elements:
1) The protection is provided for a fixed term of 10 years.
2) The fund aims to maximise returns through investing in markets at all times however the manager BT will dynamically allocate between equities and bonds when the value of the CPP fund falls below a predetermined "sell trigger.'' BT will then reallocated from bonds to equities when the value increases back above the predetermined 'buy trigger.''
3) The value of all investors initial investment is protected, so that even if the anticipated returns do not eventuate, their initial investment is returned to them at maturity (at the conclusion of the 10 year period.)
4) The CPP provider is Westpac.
Q) How big is it?
A) So far, only NZ$30-35 million of KiwiSaver money is invested in our capital protected funds. It hasn't been a particularly popular option because its complicated. It's also an expensive option. The total expense ratio is about 170 basis points.
Q) What's your criteria for selecting a fund manager?
A) We tend to look at the track record of the person, rather than the track record of the strategy of the manager because we recognize that over time people will change firm, people get promoted or what have you so we want to focus on the individuals themselves.
Q) Are KiwiSaver members more exposed to risk given the distance between their money and the managers?
A) No. Basically we set up pots money so separate accounts are linked to a fund manager who has a management contract on that pot of money. If we need to replace them for any reason, the assets are owned by ourselves, so we can sack them or replace them and appoint another manager. It’s an efficient way of being able to replace managers quite quickly.
Q) Have you had occasion to replace any managers yet?
A) There have been restructures across these portfolios but they tend to be relatively infrequent and they only occur if the conviction level is reduced significantly.
Q)What's your investment philosophy?
A) We put a lot of focus on research and high conviction; we’ll back ourselves with meaningful positions, uncomplicated strategies; we recognise that in today’s market environment securities are prone to over engineering, if we don’t understand the structure we won’t put our clients in there, transparency and ownership of assets is key as well. We’re required to see what our holdings are in any given day and to see what's there.
Risk management is key as well We spend a lot of time as a team focusing on long-term allocation decisions but we also recognise that you have to be flexible enough to take advantage of market opportunities. We call that dynamic asset allocation. From time to time we’ll implement tilts in the portfolio so we might go underweight in global fixed income for example or cash.
An example is at the moment we have an underweight position in fixed income. We feel that bond rates, specially sovereign debt is fairly expensive, and we have more allocated to cash than we have in the past.
We have an active philosophy, we don’t want to put investors into low cost, passive type of investors which are guarantee to under perform over a long period because long term savings and that active premium you can pick up.
Q) What changes if any have you made recently?
A) We’re broadly neutral across other classes. We’ve taken a bit of money out of global equities but we just went through derisking portfolios. We've allocated a bit more money towards alternative assets; being hedge funds. That’s on the basis that we feel that market volatility is going to be with us for some time. That suits an environment for hedge funds to deliver good performance. I think it’s also probably a uniqueness for Westpac relative to our peers.
We are very fortunate to have a lot of levers we can pull across the portfolios. We have some very broad asset classes. So long as we have the ability to allocate hedge funds (which typically have a high costs) but we have that within Westpac’s scheme and it’s delivered us with an extra return in the last few months.
Q) What do you say to critics who suggest active managers can't beat the index?
A) I think if you look at the returns of the active managers there is clear evidence, especially in the New Zealand market, of active managers delivering outperformance. You can always produce research to back up whatever claim you're making and a lot of proponents on the passive side of the debate will focus on the average fund managers and look at U.S. equities and take average returns from them relative to the market. If you look at median returns, I think you'll get a different snapshot.
The other thing is that that the barriers to entry in this industry are very low. Anyone can set up with an office and terminal and start making money and then they just become part of the numbers. Quite frankly, I think a lot of people in this industry shouldn’t be in business let alone handling money.''
Q) Going forward, how will BT ensure acceptable returns for its members?
A) You have to be very dynamic in your allocation. Now is not a time for set and forget portfolios because you’re just going to follow the market down. It’s going to force you to buy assets that are and could be more expensive. Markets are going to remain volatile for some time. We’re seeing lots of volatility, the highest I’ve seen in my career. And that creates a lot of opportunities.
Now is not the time for bold asset allocation. The best way to survive a bear market is to remain invested and focus on your long-term objectives. KiwiSavers have to recognise that this is a long-term commitment they’ve made to their savings and making decisions based on what’s happening now could have a profound effect your long-term outcome.
Snapshot:
Total membership as of July 31, 2011: 223,718
Total market share: 12.51%
Average net new members per week from Oct.1, 2010 to Aug.31, 2011 - 1,038
Marker share of KiwiSaver enrolments (July 2011) 22%
1 Comments
love my Westpac Kiwisaver Capital Protection Plan and I checked it on the web last week and my 4th CPP fund has just been opened . I love the fact that I am exposed to the sharemarket with that little backstop that if in 10 years after each fund opens it has been a total mess I get my capital back. I can have my cake and eat it to ( hopefully )
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