NZ Meat Board chases higher returns from $70M of funds now held in term deposits
By Jonathan Underhill
May 25 (BusinessDesk) - The New Zealand Meat Board will increase the risk profile of its $70 million of reserve funds, adding shares to what is now mainly held in term deposits in a bid to lift returns.
The shift to a balanced portfolio is aiming to achieve a return of at least 3.3 percent "after all investment, funds management and custodial costs, inflation and any tax drag" are deducted. It generated interest income of $2.3 million in 2017, a yield of 2.95 percent, according to its annual report.
The board has been risk-averse and intent on preserving capital by making the lowest risk investments. As a result, it held about $69.9 million of its reserves as term deposits as at Dec. 31, of which $54 million was parked in New Zealand and $19.8 million in overseas term deposits. Another $4 million was held in local bonds. A conservative approach may not be ideal for an organisation with a time horizon of more than 15 years and a mandate "to maximise investment returns within reasonable and prudent levels of risk."
But that's going to change. After consulting stakeholders and hiring investment advisers Cambridge Partners, the board is moving to a balanced portfolio - adding shares which have the potential to deliver capital gain and dividends alongside fixed-interest investments, where the capital is preserved. The new portfolio will be 50 percent growth assets including local and offshore shares and property alongside NZ cash and fixed interest.
And there's a banned list - no investment in makers of cluster bombs, nuclear weapons or anti-personnel mines; no commodities, no junk bonds, hedged fund or private equity investments; no structured debt or preference shares; and no leveraged investments, derivatives, unlisted equities or limited partnerships. It is also forbidden from short-selling or margin trading.
"The new investment strategy should allow NZMB to achieve improved returns on the funds for only a little more risk and see reserves grow into the future while also providing for enhanced industry good funding in the medium term," the body says on its website. At the same time, the board's reserves policy is to be amended to adjust for inflation, ensuring the capital isn't eroded that way.
Chair Andrew Morrison said Cambridge Partners is now assisting the board to select a fund manager for the $70 million mandate.
Of that total, $57.7 million is held as a contingency fund to cope with industry emergencies, leaving a general reserve which includes funds for 'public good' research such as the Red Meat Partnership. It also includes an investment fluctuation fund of $2.5 million to account for foreign exchange movements.
The board manages the allocation for quotas in three export markets, registers meat exporters and manages reserves in the interests of livestock farmers. The board will review its reserves policy every three years.