The Australian scheme was made possible because of a number of unique factors including a “highly centralised wage system” at the time. The other major initiative, the NZ Superannuation Fund, was created in 2001 and started investing, with $2.4 billion, in September 2003. The Government aims to put in another $2 billion each year for 20 years. The fund had $14.3 billion as at April this year. Like Australia’s Future Fund, NZ Super is a special purpose pension fund, rather than a foreign exchange or resources reserves-based sovereign wealth fund.
The money will offset the general pension drain from an ageing population in which the number of retired people will double by 2050. The fund is expected to total about $109 billion by 2025. Amazingly, it is expected to be worth about half of NZ’s GDP by 2040, before it starts to tail off due to drawdowns.
Adrian Orr, NZ Super’s chief executive, spoke at the FEAL forum about the fund’s asset allocation and investment policies, including ways it could take advantage of its liquidity and long-term horizon, such as being a lender to sound-but-illiquid investments.
The tough market conditions had a silver lining for the fund because everything was at a discount, he said. The fund prides itself on being among the most transparent in the sovereign wealth fund universe studied by the Peterson Institute for International Economics in Washington, among other bodies. Its website, nzsuperfund.co.nz, is well worth a look.
NZ Super has also been a trend setter in responsible investing, from the early days under its inaugural chief executive, Paul Costello. Costello, who now runs the Future Fund, recently said that the Future Fund was developing its policy on environment social and governance issues and this should be finalised later this year.
A recent policy initiative of NZ Super was to announce that it would terminate investments in companies which made “cluster bombs”. The fund estimated that it had $26 million in companies identified by an external screening agency as potentially being involved in some way in the manufacture of the bombs. Cluster bombs will be prohibited under a convention which is open for signature at the end of this year. They include a large number of bombs which are scattered and often involve taking civilian lives long after the initial explosion.
Orr told the FEAL forum that NZ Super viewed exclusions from investments, such as that, as a last resort, after “engagement” with the company did not have the desired effect.