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Speech by Guardians of New Zealand Superannuation Chairman Gavin Walker at Wellington Board stakeholder function, 17 June 2015

Good evening and on behalf of the Board and management of the Guardians of New Zealand Superannuation – welcome.

Thank you for joining us tonight. It’s good to be here for our first Board meeting in Wellington for some time.

First, I’d like to introduce you to our Wellington-based Board members Catherine Savage and Stephen Moir;

Also present is former Wellingtonian Mark Tume, now based in Australia; Lindsay Wright, who is resident in Hong Kong; and my fellow Auckland directors Pip Dunphy and Craig Ansley;

Our CEO Adrian Orr is present and being a former Welllingtonian he needs little introduction.  I have to say that he continually reminds us Aucklanders as to which Super Fifteen franchise is in turmoil and which is going to be crowned champion. I suppose it is a case of taking the boy out of Wellington but not Wellington out of the boy!  But who can argue.

I’d also like to acknowledge founding Chair David May, who is with us tonight. David, the Fund has a lot to thank you for.

It is with some satisfaction that I can say that the Fund has continued to perform strongly – the last three years, some 21% p.a.[1]

It sounds too good to be true! Certainly, if I saw returns of 21% p.a. advertised for an investment product, I would be thinking that it was too good to be true.

So a word of warning is needed – these high returns are very much at the upper end of what we expect the Fund to return – our five year return is at the 93rd percentile. The last few years are likely to have been among the best years the Fund will experience for some time.

On average and over the long-term we expect to earn the rather less exciting figure of 8% p.a. – but which will still provide a handsome return to New Zealander stakeholders.

Along the way to that long-term average there will be ups and downs… and no doubt many individual investment successes and failures. That is the nature of investing.

So while the going is good, I want to remind you of the importance of focusing on the Fund’s returns over the long-term, and hope that just as many of you will want to hang out with us in the midst of the next market downturn, as do tonight.

The Fund now stands at nearly $30 billion. It’s an awful lot of money – several billions more than is in KiwiSaver in total - but still only around $6,600 for each New Zealander.

I also note that if contributions to the Fund had not been suspended in mid-2009, we estimate the Fund would now be worth some $47 billion, or the equivalent of $10,400 for each New Zealander – an increase of 58%.

So, the task in front of us, if we are to meet our purpose and make a meaningful difference to funding NZ Super, is very large.

We are therefore heartened by support for the Fund from across the political spectrum and indeed from within the media. In particular, it’s great to see agreement about the need to re-start contributions to the Fund, even if there are different views on the timing of doing so.

What I would say, however, because of the significance of the task in hand, sooner is better!

I also want to convey the sense of responsibility that the Board feels – and that I know Adrian and his team share - in managing the Fund on behalf of taxpayers. This is expressed in many ways:

  • our commitment to transparency;
  • our focus on responsible investment; and
  • our pursuit of strategies that we firmly believe will deliver the best long-term outcome for the Fund.

On this, the biggest risk that we as a Board face is that we are too conservative, meaning that we do not take enough investment risk – and ultimately, in 20, 30, 40 years’ time – when we are all out of the game, so to speak, – the Fund undershoots its long-term return objective.

The Board continues to think deeply about this. We are, however, confident that the amount of risk the Fund is taking is appropriate and that our portfolio is well-diversified.

We are also focused on ensuring the Fund acts like a long-term investor – that is, with a view to the future. For example, alongside other priorities, we are putting a major effort into understanding climate change risk and how to respond to it across our entire portfolio.

We are working hard on this subject matter and any changes to our investment strategy will only be made after careful consideration, be done properly and done once. In other words consistent with how we approach all our investment deliberations.

In a New Zealand context, we want to ensure we are deploying our influence in the domestic capital markets appropriately. The Fund will be invested in the NZX50 not just for the next year or two but for many decades to come – so we have a real interest in ensuring that New Zealand listed companies are also being managed for the long term and in line with best international practice.

It is a real pleasure to chair a Fund that has the luxury of a long horizon, doesn’t have to worry about servicing the short term whims of investors, and which, because of its significance to its home country, is able to attract a top quality staff. Having visited and spoken to many of our global peers, they envy us in many regards and in particular our operating and governance models of independence. There is little doubt that both have significantly contributed to our success.

In this regard, I’d like to pay special thanks to Treasury’s Kirsty Flannagan, for her efforts on our behalf, and wish her the very best of luck in her new endeavours.

Thank you all for attending and please do take advantage of this opportunity to chat in person tonight to my fellow Board Members and the management team of the Fund. I hope you enjoy your evening.

[1] Total Fund return for the three years to 31 May 2015, after costs, before NZ tax.