(Pictured: Gavin Walker)
The New Zealand Superannuation Fund, which regularly rates as the most, or among the most, transparent sovereign wealth fund in the various global studies, has published an independent review of its board and management, complete with a detailed response from the fund. The areas of disagreement are illuminating.
The review, conducted by the Singapore-based subsidiary of the global Promontory Financial Group, is the first for five years. It is, fundamentally, a glowing report but, nevertheless, lists nine ‘recommendations’ and 12 ‘suggestions’ for what the consulting company, which also sells software, thinks would be improvements.
The fund’s guardians (trustees) agree with six of the recommendations, agree to consider another two and say that the final one – which recommended an increase in their remuneration – was a matter for the Government. Of the 12 suggestions, they agree with seven, disagree with two, disagree ‘in part’ with one and agree ‘in part’ with two. The chair of NZ Super is Gavin Walker, who is also chair of the independently owned NZ fund manager and bank ASB Bank.
On the remuneration recommendation, the fund is clearly well below similar funds in the amount it pays its directors. The fund’s directors’ fees were last increased in 2008. They are: NZ$54,000 for the chair, NZ$33,750 for the deputy chair and NZ$27,000 for the others. This compares with A$193,660 paid to the chair of Australia’s Future Fund in 2013, and A$96,850 to others on the Future Fund board, and A$89,300 paid to the chair of AustralianSuper, A$50,000 for the deputy chair and A$26,300 for other trustees. Neither the Future Fund nor AustralianSuper, unlike NZ Super, has the onerous task of reporting publicly every month, which leaves it open to every two-bit politician looking for a cheap headline.
(The NZ Super management are not so out of kilter with the global marketplace. Adrian Orr, the chief executive, who doubles as a CIO notwithstanding the well-staffed investment teams, gets NZ$800,000 a year, for instance, compared with A$1.1 million paid to the Future Fund’s David Neal.)
Neatly brushing the remuneration issue aside, the NZ Super guardians agreed to “consider” appointing a chief risk officer and a compliance officer. They noted, though, that “artificially separating risk from return and allocating overall responsibility for risk to a CRO may lead to worse decisions and outcomes”.
They disagreed with the suggestions that they review forecasts and assumptions every six months and that they formalise a definition of ‘material’ for breach reporting by external managers.
The guardians said that the appropriate timeframe for assessing the success of an investment strategy varied considerably, so applying a standard six-month timeframe would likely not provide particularly useful results.
They also said that ‘materiality’ means different things in different contexts and can be both qualitative and quantitative. “It would be very difficult to attempt to define what is material and, as such, it is standard market practice not to [do so].”
The guardians further point out that standardization is inconsistent with the objective of materiality clauses, which is to make clear the expectations of a manager’s disclosure behaviour.
“While we provide examples, we do not wish to provide a ‘checklist’ because it prompts a checklist mentality, which creates more risk than any checklist could resolve… Our preference is to communicate our clear expectations of manager behaviour, to have the flexibility to treat incidents (disclosed or otherwise) case-by-case and ultimately we have a clear ability to terminate IMAs if expectations are not met.”
– Greg Bright