Adrian Orr reflects on reasons behind NZ Super’s success

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Adrian Orr, the chief executive of New Zealand Superannuation Fund, announced last month that he would be leaving at the end of March to take up the prestigious role of Governor of the Reserve Bank of New Zealand. He had previously been deputy governor before he joined NZ Super as CEO in February 2007.

Under Orr’s leadership the A$35 billion fund has gone from strength to strength and is perceived as one of the best managed, as well as best performing, sovereign wealth funds in the world.

In this brief interview with Greg Bright, ADRIAN ORR reflects on a few aspects of why NZ Super has been a success.

Q: Transparency and governance have been hallmarks of the fund since inception. How do you rate those characteristics?

A: Long-term investing is hard – it requires good governance, discipline and steady hands. We have been blessed with a strong governance structure and independence from the Government. We continue to invest in comprehensive Board education, in improving Board and management reporting, and in delivering on a strong commitment to transparency about our activities and investment portfolio.

Transparency is essential if you are to maintain the trust and confidence of the public. We are managing tax payer money – not our own. This is about respect for the public – if that trust is gone so is your licence to operate.

Q: NZ Super has punched above its weight for years. What do you think are the most important elements for its success?

A: We have a genuine long-term horizon which, combined with our certain liquidity, sovereign status and operational independence, gives us an advantage in the investment marketplace. We’ve had a huge focus on attracting a great team to Auckland and on developing a constructive workplace culture.

We’re fairly informal and the culture is deliberately relaxed and non-hierarchical. We want a workplace where people feel empowered to speak up, where they’re actively collaborating rather than competing, and where diversity of perspectives is encouraged and supported.

Q: What advice can you give other sovereign funds in terms of: investment strategies and/or dealing with the governments which control them?

A: In terms of investment strategies, climate change investment risk should be a focus. We announced our climate change strategy last year, and recently signed up to the One Planet Sovereign Wealth Fund Working Group in order to accelerate efforts among SWFs to integrate financial risks and opportunities relating to climate change.

In terms of Government relations, NZSF is fortunate in having a legislative mandate that establishes our commercial independence – matched with an expectation that we operate in line with global best practice. Governments are vulnerable to election cycle thinking – to be effective as investors, we need to be able to operate over longer time frames. While the commercial independence is critical, it shouldn’t be an excuse to neglect your relationship with Government and the broader Parliament. We consider it important that all Parliamentary representatives are well informed about our organisation’s role and performance.

Q: What can sovereign funds teach Australia’s super funds? 

A: Actually, I’m sure there is plenty the leading Australian super funds can teach SWFs!  Here in NZ we have great respect for the Australian super fund sector, and maintain strong relationships with funds such as QIC, Australian Super, VFMC and TCorp, through our own peer collaboration efforts.

We support Future Fund CEO David Neal’s statements on the high level of fees being charged by investment managers, and the apparent lack of alignment with clients. We regularly benchmark the fees our external managers charge, and negotiate hard on both new and existing mandates – it’s an increasing focus for us. We also have a strong preference for managers who are prepared to work closely with us – sharing information and knowledge. We want deep partnerships – not one-sided relationships. This applies to peer funds as well as managers.

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