The investment industry of Asia Pacific has evolved in leaps and bounds in the 20 years since AsianInvestor began publishing. To celebrate our 20th anniversary edition we asked a set of the most experienced and senior industry veterans to describe the major changes they have seen, both in their organisations and beyond.
 
The very first employee of New Zealand Super in 2002, Tim Mitchell helped create the sovereign wealth fund before moving in 2015 to consultancy Willis Towers Watson, where in May 2019 he became head global governance for investors. He told AsianInvestor about his efforts in helping establish the pioneering sovereign wealth fund and the benefits of establishing proper governance and investment processes among regional asset owners. 

Q. How did you get involved in setting up New Zealand Super?

I’d been in investment market since 1980, working in bond management and equity analysis and strategy and I was a CIO in the mid 1990s.

I’d stepped out of investment management in the late 90s and had spent a couple of years in the New Zealand Treasury, and the government established New Zealand Super in 2002 and appointed a board was appointed and a chairman to run it. They said ‘nobody has done the work to set it up, so you can help to set it up?’

When we started investing in 2003 I was one of maybe four staff. I went there for six to 12 months and left some 13 years-plus years later.

Q. How did the organisation change during your time there?

We started as an outside-in organisation, with external agents driving the agenda while our [investment] role was relatively passive. But the inside-out version, in which the internal organisation could drive the agenda and move around with consultants and managers was very appealing, so NZ Super changed tack in 2004.

That something that has really gone into the DNA of NZ Super. It always has the idea that it can build a better mousetrap.

For the first five or so years we were foundation building, making sure that we were good frameworks in place and the board was well supported and as strong as we could make it and could deal with a wave of cash flow coming in. At the same time the organisation’s staff was growing relatively slowly. By the time of the global financial crisis it had 25 to 30 people.

The passive reference portfolio concept was really borrowed from CPPIB, although NZ Super used a simpler version. Strategic tilting also emerged during that period. NZ Super put its first strategic tilt in 2009 and it was incredibly good timing. We had worked on it for 12 to 18 months and it literally arrived at the bottom of equity market.

Q. What lessons did the global financial crisis teach you about investors?

In 2008 we had large swaps in place for FX and equitised exposure and hedge funds and then suddenly liquidity was a critical issue and we and other organisations weren’t prepared for it.

A lot of funds had been going down the Yale or Canadian model – more so that Yale one, where it was a good thing to have private assets and hedge funds and like. And they ran smack bang into a world changed through the global financial crisis, which caused their portfolios to look very different.

Key problems for asset managers were liquidity management and enterprise management, and the large ones at least had to grapple with it quickly. To grapple with that you needed more people, as they arrived the figured they could use more people too, and so the internationalisation of funds began to accelerate.

Q. What were your biggest success?

I truly believe NZ Super’s biggest success was its governance. They have benefited from always having a good board that has had the courage to, as my colleague Roger [Urwin, global head of investment content at the Thinking Ahead Institute] says, 'do the right things and do things right'.

Culturally within organisation the view was that we have a blank sheet of paper, and it was a wonderful opportunity to build a great organisation. The biggest professional risk to us as individuals was that we didn’t make the most of opportunities. Not that we tried something that was wrong but that we did not try something at all. A cultural mindset was developed to be prepared explore ideas, fail if necessary and move on.

That’s continued. NZ Super now nearly 18 years old and been investing for 17 years, and it’s prepared to adapt version 6 or 7 of itself. That mindset is really important.  

Q. What was your biggest regret?

We could have done some of these steps earlier possible, but we had to evolve to get there.

One of my responsibilities was being the head of public markets and we built a process for evaluating managers, but it the way we built the framework it concentrated too much on quantitative managers, which was a bad strategy in 2008.  

Q. How should asset owners evolve in the coming decade?

We are continuing to see more internalisation and the economics of that are quite compelling, provided that you have got the right governance arrangement to support it.

It’s really foundational to have really clear decision-making frameworks, whether it’s how to think about risk, or capital allocation, or any number of issues. Good governance 101 is to create beliefs, but many don’t really think about this and or how it impacts their thinking. A good board can challenge an organisation and ask how investment decisions work with this thinking.

As more organisations build internal teams, it’s important to build a culture to ensure everyone is pulling in the same direction. Diversity is a subset of culture; we know that cognitive diversity is important to get more ways of different thinking about how to approach problems.

There’s also link between human and physical technology, and how investors/asset owners can use systems and data to inform and help them make decisions And climate issues and sustainability issues have clearly and really ramped up particularly in last couple of years.

I was talking to a CEO of a major client a few months ago and he went on fact finding mission of peers particularly in Europe and North America and said all they want to talk about is sustainability. It’s moving from being a two-dimensional problem of risk and return to a three dimensional problem of risk, return and impact.

This interview first appeared in the 20th anniversary edition of AsianInvestor magazine, which was published in late June.