The following questions are answered by Adrian Orr, CEO of the New Zealand Superannuation Fund:
Question 1: How does the New Zealand Superannuation Fund view the future of transparency, are there any common beliefs among the leadership as to whether or not the current state of transparency standards are adequate, or if more needs to be done?
The future of transparency
In the view of the Guardians of New Zealand Superannuation (‘the Guardians’, ‘we’, ‘our’) the Global Financial Crisis is just the latest example of how perceived or actual opacity can damage the reputation of financial institutions. This in turn damages the perceived domestic and international legitimacy of these institutions, and ultimately their ability to operate.
We believe that an important step toward establishing and then preserving legitimacy is for a financial institution to make it easy for its stakeholders to understand why it exists, what it does, and how. The Guardians have taken a broad view of who our stakeholders are, because our impacts are broad and criticism can come from many quarters and can very rapidly become a material operational issue.
This is a reality already being faced by SWFs and we believe it will become more acute, for a number of reasons.
1. As a consequence of SWFs’ increasing impact
As SWFs get bigger their individual and collective impacts will increase on domestic and international capital markets, real economies and people’s lives in general. This creates and enhances political, media and general public scrutiny.
2. As a consequence of change within SWFs’ broad system of potential counterparties
Co investors, investment managers, regulators, governments and other counterparties will all be responding to their own changing transparency requirements e.g. through changing electoral demands; new or tougher official information legislation; through becoming signatories to the UN-PRI or other transparency/principle-driven structures. This means that an increasing number of investment opportunities will come with potentially multiple levels of transparency requirements ‘baked in’.
3. As a consequence of SWFs’ purpose
Many SWFs have intergenerational purposes e.g. pension prefunding. As these purposes move from conceptual to tangible (in the Superfund’s case from 2031), more scrutiny will be applied out of self-interest as to how successfully (or otherwise) an SWF is fulfilling that purpose.
Current transparency standards
For each SWF these are a function of a combination of;
Compliance (including with any SWF-specific establishing legislation); and
The SWF’s assessment of how much additional transparency is prudent for its commercial operations and home jurisdiction.
The Santiago Principles are a proactive recognition that a certain level of transparency is both necessary and desirable: in the first instance, in anticipation of regulatory barriers to SWF investment which may be erected as a result of perceived SWF opacity.
Question 2: What factors of transparency are of high importance to the New Zealand Superannuation Fund? We currently list about 10 principles that we feel the average person would be interested in, can you tell us what the public needs to know?
Factors of transparency of high importance to the Guardians of New Zealand Superannuation
For us transparency is important around three main areas:
Why we exist – what outcome is it that the NZ Government and Guardians are seeking from the New Zealand Superannuation Fund and what parameters (e.g. principles, standards and procedures) have been established around the pursuit of that outcome? Crucially also, what is the timeline for achieving it?
What we do – what are our beliefs about investment, what are the underpinnings of those beliefs, what strategies have we in place to deliver on our beliefs and what are our organisational capabilities to successfully execute the strategies? How do we structure our investment portfolio for our long-term purpose and how do we manage the trade-off between our expected returns and risk? What are we invested in and why? How do we select investment managers?
How we are performing – what is our performance relative to our expectations and within that performance what value are we adding relative to the returns the New Zealand Government could have generated by doing nothing, relative to the Guardians being a smaller, simpler organization and relative to another organization with a comparable portfolio managing the Fund instead of the Guardians? How are we performing against the non-financial aspects of our mandate and what specific examples of this can we point toward?
Relative to the Linaburg-Maduell Transparency Index
The categories in the index are logical but as SWFs mature and as the transparency demands of them also mature (crucially, not necessarily at the same pace), we believe focus logically will go on two areas which collectively best demonstrate how the SWF behaves.
1. What investment beliefs does the SWF hold and what are the strategies and capabilities it has to deliver on them; and
2. What proof points does it provide of investment activity which is consistent with those beliefs i.e. case studies?
Data Collective led a US$ 15 million Series A round into Salt Lake City-based Fortem Technologies, Inc., a company that works on solutions that can detect, identify and classify drones in real time to maintain airspace safety. Other investors in the round include Boeing, Mubadala Investment Company, Manifest Growth, New Ground Ventures and Signia Venture Partners.
Ibrahim Ajami, Head of Mubadala Ventures said in the press release, ” Mubadala is excited to work with Fortem and its outstanding leadership team to help grow its business to new markets.”
Ajami added, “We strongly believe the TrueView radar is essential to maintain a safe airspace for both the aircraft and the critical infrastructure on the ground.”
The Ireland Strategic Investment Fund (ISIF) and CIC Capital Corporation – a sovereign wealth enterprise (SWE) of the China Investment Corporation – announced the formation of a joint €150 million fund targeting high-growth Irish technology firms looking to expand into Chinese markets, as well as a special emphasis on Chinese companies hoping to set up shop in Ireland as a base for their European operations.
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The Council of Institutional Investor’s spring conference for 2018 – held this week in Washington D.C. at the Omni Shoreham Hotel – was packed with member-hosted panels, where nearly 400 of the top investment professional, regulators, and corporate governance experts gathered together to share their insights and engage in forward-looking discussions on how to drive a multi-stakeholder approach to responsible investment over the long-term.
Sovereign Wealth Fund Institute (SWFI) had the opportunity to attend several breakout sessions, including one presented by Maryland-based Institutional Shareholder Services that sought to address one of the most pressing challenges facing institutional investors today: How can environmental, social, and governance (ESG) criteria help drive voting at the board level? Moderated by Georgina Marshall, Head of Global Research at ISS, panelists provided a diverse array of perspectives on how to harness ESG considerations as an effective decision-making tool.
For Bonnie Saynay, Global Head of Responsible Investments at Invesco, fostering an environment conducive to communication with investment teams using a “player-coach” model is critical. Moreover, Saynay warned investors of thinking too broadly on ESG considerations, and to instead focus in on the criteria that is most important to them as an organization, and to then tailor their stewardship practices to match those priorities: “If everything is important, nothing is important,” she said.
Clare Payne, head of corporate governance for North America at Legal & General Investment Management, highlighted the importance of procuring the latest ranking data from a number of different providers, as well as how to develop one’s own internal system for scoring so as to cut through the clutter and provide a contextualized framework for making investment decisions on your own terms.
Remuneration is the name of the game for Robbie Miles, Vice President and ESG analyst at Allianz Global Investors. Amid the ever broadening scope of influence that responsible investment commands, Miles urged attendees to work with their managers on mandates that link compensation to the long-term performance of the fund, as well as long-term holding periods.
Wrapping up the panel was Stu Dalheim, Vice President of Shareholder Advocacy at Calvert Research Management, advocated for diversity at the board level across a number of different metrics – including ethnicity, gender, and professional backgrounds – in order to reflect the reality of their client base, as well as provide an apparatus for robust debate and adaptation in an ever-changing business environment.
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