He says the same process could be used for KiwiSaver – the national voluntary savings system in which funds managers run individual accounts – because it would increase transparency. People could gauge the value of active management and decide if it was worth paying for. “KiwiSaver is hard for an individual because of the choices [available]. You can choose between active and passive [strategies] and it’s hard to know what you are paying for. “What would be more effective is to have passive reference portfolios of, say, balanced or growth, then an individual could choose whether to pay for something that is more active. It becomes very clear what you are paying for and that you receive what you pay for.” Essentially, the link between cost and value needs to be more obvious, Orr says. This is currently complicated by the abundance of service providers in the investment industry For most of his career Orr has worked as an economist, including a tenure at the Reserve Bank of New Zealand as deputy governor and head of financial stability. He says this industry has “a wall of jargon around very basic economic concepts”. “The ability to charge fees from asymmetric information is a driver. The local mechanic is the same: there is an advantage to be complex and charge for that,” he says. But allocating assets according to their specific added value, compared with what could be achieved from a low-cost and simple alternative, adds irrefutable transparency, he says. At NZ Super, this method provides a real measure of the investment team’s success.
Trite and true The fund’s vision is to have “a great team building the best portfolio”, Orr says. He concedes this is “trite like all vision statements” but is nonetheless an aspiration that guides the culture. “A great team requires a lot of effort but it is critical to define the competencies we need to really work as a team. It is all about caring about each other’s advancement,” he says. To this end, performance is assessed by not only measuring achievements but how they were made. Full 360-degree reviews and other assessment methods are used to do this. “This is something we are getting better at measuring. For example, an individual won’t get a bonus if they knocked the ball out of the park but annoyed everyone along the way. The same applies if you’re everyone’s friend but have done nothing,” Orr says. “No one individual knows all the tools to get the investments done.” Investment processes are initiated by the asset allocation team, which is led by Neil Williams.