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?
The United Nations Children’s Fund (UNICEF), a United Nations programme headquartered in New York City, has partnered with Norges Bank Investment Management (NBIM) to facilitate a series of meetings between companies to discuss issues surrounding children’s human rights.
According to the news release, “the network will facilitate dialogue between leading brands and retailers in the garment and footwear industry to strengthen children’s rights.”
NBIM is invested in many listed companies and have invited them to join a network to tackle these issues. Over the next two years, the organizations plan to hold three workshops as well as quarterly meetings surrounding these issues.
“Over time, we hope and expect that the network will contribute to improved market practices among companies and greater respect for children’s rights,” says Carine Smith Ihenacho, Global Head of Ownership Strategies, in a NBIM press release.
The China Investment Corporation (CIC) has long struggled with its investments in coal assets, specifically in globally-listed coal miner SouthGobi Resources Ltd, which operates its flagship coal mine in Mongolia. In November 2009, CIC and SouthGobi Resources inked a convertible debenture deal. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
MSCI, a stock index company whose benchmarks influence investor behavior, has tremendous indirect power impacting the stock markets of smaller economies. In 1988, MSCI released its emerging markets index, a now-widely-used benchmark for many institutional investors wanting access to growth markets. China and South Korea make up the majority of the benchmark, but smaller economies such as Poland, Chile and even Qatar make up other pieces of it.
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