How does Mercer build the funds?

How does Mercer build the funds?

The Mercer Multi-Manager Funds are constructed using the guiding principles of our investment beliefs. When designing and managing the funds, we have a process that encompasses:

  • Setting the objectives and investment strategy
  • Selecting the managers
  • Dynamic asset allocation
  • Sustainability and ESG considerations.

Investment Strategy and Objectives

The Funds are created with a specific performance objective, which we aim to consistently achieve over time.

Our multi-manager approach to investment manager selection allows us to deliver optimal exposure to a range of investment management styles. In formulating the preferred portfolio structure, we aim to provide access to the widest opportunity set, use innovative asset classes, and enable exposure to less efficient markets, allowing us to maximise the ‘value add’ potential of each fund.

Consideration is also given to both active and passive management, capitalisation biases and the optimal number of managers to be utilised. The overall objective is to produce consistent performance throughout market cycles.

For each Fund, we have determined an investment strategy we believe is likely to enable the Fund to meet its objectives. The investment strategy includes the selection of a long-term mix of investments (asset classes) that support the Fund’s objectives, as set out in each PDS. There is no guarantee that a particular objective will be met over a particular period.

Passive funds are invested to ensure the particular sector exposure is consistent with the benchmark index for that sector.

Changes may be made to the investment objective/s and strategy for each Fund, as required, to ensure that the objective(s) continue to have a reasonable probability of being attained. The actual asset allocation may fall outside the stated ranges during certain times such as extreme market conditions, asset class transitions or during material transactions.

We monitor each Fund’s performance against objectives, with formal quarterly analysis and reporting to investors.

Manager research and selection

Mercer’s significant scale and our extensive global investment manager research provides us with access to the best ideas from more than 5,900 managers around the world (as at 31 Dec 2015).

Our Australian-based multi-manager team leverages the global Mercer research network to achieve optimal combinations of specialist managers for each Fund. Mercer’s investment manager research focuses on each manager’s strength in idea generation, portfolio construction, implementation and business management.

Prior to the appointment of an investment manager a detailed Operational Risk Assessment Report is prepared, considering risks associated with the investment mandate type, firm size, and significant third party or outsourced relationships, along with the mitigating or compensating controls that a firm may have to manage potential issues.

We may remove, replace, or appoint additional investment managers for the Funds at our discretion at any time.

Current investment manager details can be obtained within the Investment Managers Appointed by Mercer document.

Dynamic Asset Allocation

For the diversified funds we make medium-term asset allocation changes in response to changing market conditions to add value and/or mitigate risk in your portfolio. A dynamic approach to asset allocation helps to negotiate the cyclical ups and downs of markets and smooth your experience. It can also improve your returns by taking advantage of short-term opportunities and avoiding temporary problems.

Sustainability and ESG considerations

Sustainability principles are built into our investment portfolios to protect and enhance the value of the Funds’ investments. We look beyond traditional financial factors and consider the potential investment impacts of corporate governance, as well as environmental and social issues – such as an ageing population, energy and resource constraints and climate change.

We believe environmental, social and governance (ESG) factors may have a material impact on long term risk and return outcomes.

The investment managers appointed to the Mercer Multi-Manager Funds are encouraged to consider the following ESG factors in assessing investment risk and opportunities, as relevant to the type of investment.

ENVIRONMENTAL 

SOCIAL

GOVERNANCE

-Climate change
-Energy efficiency
-Pollution control
-Resource scarcity
-Renewable energy
-Water management

-Employee labour standards (including wages, working hours and diversity)
-Occupational health and safety
-Employee relations
-Human rights
-Supply chain labour practices (including child and forced labour)
-Talent attraction and retention

-Community engagement
-Corporate citizenship
-Anti-bribery and corruption
-Remuneration
-Board balance and diversity
-Operational and risk management

Active ownership and investment stewardship

We believe principles of active ownership and investment stewardship are of value in the investment process. For this reason, ESG considerations, principles of active ownership and investment stewardship are incorporated throughout our investment decision making and ownership practices, as documented in the Mercer funds:

  • Sustainable Investment Policy
  • Corporate Governance Policy

In addition, the PDS for the Mercer Australian Socially Responsible Shares Fund sets out additional socially responsible considerations that are taken into account when making investment decisions for that Fund only.

Review the ESG Policies section of this website for further detail.