NZ Super takes stock of its investments and culture

While reporting continued positive returns, the sovereign wealth fund is being encouraged to reassess its reference portfolio and broader culture.
NZ Super takes stock of its investments and culture

The NZ Super Fund’s latest performance review highlights that it added NZ$261 million ($167 million) above its passive reference portfolio in the year to June-end, thanks to the success of its alternative energy, opportunistic and active collateral investments.

As reported, the fund now has just over NZ$43 billion ($27 billion) under management, having produced a 7% return in 2018-2019.

Chief executive officer Matt Whineray told AsianInvestor that active management, outside of the passive reference portfolio, was a large driver of returns in the past year.

Matt Whineray, NZ Super

"It covers activities like active equities, arbitrage, strategic tilting, real assets, emerging markets, timber and liquidity management," he said.

Since taking over as CEO of the fund a year ago, Whineray said he and the investment teams have taken stock of themselves as an organisation, leading to the development of a new set of values.

This coincided with the appointment of a new chief investment officer, Stephen Gilmore and the extensive review of the fund's entire operations by Willis Towers Watson, which concluded that the fund is a global best-practice organisation and effective in carrying out its mandate

Whineray told AsianInvestor the WTW report, while giving the fund an excellent rating, did make certain recommendations.

“They said we should review our investment beliefs, our values and our strategic principles. We are in the process of doing the first of those, as we review the reference portfolio," he said.

The fund is currently undergoing a five-yearly review of the reference portfolio and Whineray said the process should be completed by June next year.

By strategic principles, Whineray said the fund needed to think about its organisational structure.

WTW "told us we should review our compensation structure. They thought there should be more variable components in compensation. They said think about what your employer’s value proposition is, which is not just what you pay people, but it’s the other things you do in order to retain them."

"They described our culture as being an excellent one," he added, "but made the point that size is a challenge and as you grow bigger you have to expend more energy to maintain that."


WTW also recommended that NZ Super put more resources into responsible investment "because that is increasingly in demand".

NZ Super already has a highly experienced environmental, social and governance (ESG) team but Whineray said “we will continue to strengthen our capability as an organisation, with progress made across our risk structure, talent planning, data management and technology efforts."

The fund will also be keeping the pressure on in terms of the ‘Christchurch Call’, working with other institutions following the Christchurch terrorist attacks, to engage social media companies in strengthening controls on the live-streaming of objectionable content.

Following the financial year-end, the fund has ended its legal action against the Bank of Portugal, to recover its investment in Banco Espirito Santo (BES).

The decision follows last year’s UK Supreme Court judgment denying an appeal against the Portuguese bank Novo Banco and a recent decision of the BES liquidation committee to subordinate the fund’s claim.

The bank failed in August 2014 and the insurance arranged by NZ Super, in the form of credit default swaps issued by Goldman Sachs, would have covered the loss.

However, the Bank of Portugal, in separating solvent and insolvent parts of the failed bank, placed the Goldman Sachs vehicle used for the loan, Oak Finance, into the ‘bad bank’ category, invalidating NZ Super's insurance.

NZ Super has argued it could not have foreseen this move by Portuguese central bank. Goldman Sachs, NZ Super and other investors* are now involved in legal proceedings in the English courts in an effort to recover losses.

The sovereign wealth fund recorded a $150 million loss on a loan investment arranged by Goldman Sachs to the failed Banco Espirito Santo in Portugal in 2014. The investment was written down to zero in the fund’s 2015 accounts and represented a reduction in returns in that financial year of 0.69%.

Whineray said while the the action has sound legal merit, the decision to stop pursuing the case is based on the efficient use of the fund’s resources and capital.

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