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The $75b Super Fund’s biggest challenge. [VIDEO] · The SME Stream

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  Speaker 1: The information provided in this program is of a general
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  Speaker 1: nature and is not intended to be personalized financial advice.
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  Speaker 1: We encourage you to seek appropriate advice from a qualified
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  Speaker 1: professional to suit your individual circumstances. How the new CEO
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  Speaker 1: of the seventy six billion dollars Superannuation Fund plans to
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  Speaker 1: double its size in the next decade by the time
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  Speaker 1: the government starts withdrawing money.
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  Speaker 2: Our challenges probably are not that different from every other
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  Speaker 2: business as you get larger and larger, so we need
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  Speaker 2: to be able to remain nimble and agile.
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  Speaker 1: Our sovereign wealth fund is now worth the record seventy
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  Speaker 1: six point six billion dollars, up from sixty five billion
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  Speaker 1: a year ago. The superfund has returned ten percent every
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  Speaker 1: year before costs and after tax since its inception twenty
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  Speaker 1: one years ago. Its portfolio mixes changed drastically over that time.
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  Speaker 1: In two thousand and three, two thirds of its money
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  Speaker 1: was enlisted equities, with just thirteen percent in other alternatives,
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  Speaker 1: but now less than half as in equities and twenty
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  Speaker 1: seven percent is in alternatives such as private equity, venture capital,
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  Speaker 1: real estate, and infrastructure. It owns hotels and farms across
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  Speaker 1: the country and as forty percent holdings in datacom insurer
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  Speaker 1: Fidelity Life, and forestry company kunger or A Timberlands. It's
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  Speaker 1: previously had interests in z Energy, Kimibank, and MetLife Care.
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  Speaker 1: A recent law change could see it go even bigger
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  Speaker 1: on direct investments. The Superfund is now allowed to take
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  Speaker 1: controlling interest in other entities that could help it reach
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  Speaker 1: the size Treasury projects doubling in the next decade to
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  Speaker 1: around one hundred and fifty billion dollars, right on time
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  Speaker 1: for the government to start withdrawing money to help pay pensioners.
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  Speaker 1: An independent assessment of the fund release this week, set
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  Speaker 1: its results over the past five years have been excellent,
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  Speaker 1: but its returns going forward could be lower due to
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  Speaker 1: geopolitical risks and excessive levels of sovereign debt around the world.
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  Speaker 1: The report said the superfund required significant change from here
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  Speaker 1: to keep its culture strong as it scales. It's had
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  Speaker 1: a number of major leadership changes over the past few months,
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  Speaker 1: with both the former CEO, Matt Winnarey, and chief investment
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  Speaker 1: officer both leaving the organization. So how does the new CEO,
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  Speaker 1: Joe Townsend, plan to grow and lead the fund from here?
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  Speaker 1: Joe lovely to met you. Thank you so much for
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  Speaker 1: doing this today. Really appreciate it. Thank you for having
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  Speaker 1: me stellar performance over the past year for the guardians
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  Speaker 1: of the superannuation fund. Largely that was though due to
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  Speaker 1: your allocation to equities, and anyone that was invested in
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  Speaker 1: tech docs has clearly done well over the past twelve months.
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  Speaker 1: How are you thinking about whether or not that'll continue?
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  Speaker 1: Are you changing your allocation? Have you taken some profits there?
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  Speaker 2: International equities composed very large proportion of our portfolio, as
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  Speaker 2: you rightly point out, so just a little bit below
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  Speaker 2: fifty percent. So international equities returned over twenty percent last year,
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  Speaker 2: and so they made a meaningful contribution to our return
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  Speaker 2: of almost fifteen percent over the past year. Having said that,
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  Speaker 2: we do have a lot of other investments in the
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  Speaker 2: portfolio as well as part of our active portfolio, and
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  Speaker 2: so what we're trying to do is to build a large,
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  Speaker 2: diversified portfolio that basically is quite robust for a number
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  Speaker 2: of different economic circumstances that might eventuate.
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  Speaker 1: What he is talk about potential recisions around the world.
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  Speaker 1: We are apparently already in one, according to the Reserve Bank.
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  Speaker 1: How do you think that might affect stock markets here
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  Speaker 1: and globally around the world going forward.
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  Speaker 2: Well, one of our challenges as a true long term
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  Speaker 2: investor is actually to build portfolios at a very robust
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  Speaker 2: for the long term and not get caught up too
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  Speaker 2: much in the noise of markets on a very short
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  Speaker 2: term basis. And so there's been a lot of talk
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  Speaker 2: around those extremely strong tech AI related stocks for a
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  Speaker 2: number of years now, but they've continued to deliver very
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  Speaker 2: strong returns and that certainly has been one of the
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  Speaker 2: positive contributing factors to our returns over.
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  Speaker 1: The past year. So you're sticking with the tech stocks
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  Speaker 1: going forward.
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  Speaker 2: Well, they're part of our reference portfolio. So our starting
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  Speaker 2: position is to have a reference portfolio which is eighty
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  Speaker 2: percent equities and twenty percent fixed income. So that part
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  Speaker 2: of the portfolio is invested passively, and so we don't
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  Speaker 2: see it as our competitive advantage to make a call
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  Speaker 2: on particular stocks that are managed internationally.
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  Speaker 1: Let's talk about the whole other half of the fund's portfolio.
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  Speaker 1: You've got a lot of alternatives and their real estate, infrastructure, farms,
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  Speaker 1: and direct investments. There's just been a changing to your
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  Speaker 1: legislation which allows you now to take controlling interests and
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  Speaker 1: direct investments and other companies. How are you thinking that
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  Speaker 1: that might change the way you think or approach direct
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  Speaker 1: investments from here?
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  Speaker 2: Well, certainly from a governance perspective, we've put a lot
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  Speaker 2: of work over the past couple of years in terms
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  Speaker 2: of what additional steps we would need to take if
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  Speaker 2: indeed we were to take a controlling interest in a
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  Speaker 2: company in the domestic marketplace here in particular, it would
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  Speaker 2: potentially allow us to take a larger stake in a company,
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  Speaker 2: which could be very important as we continue to grow
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  Speaker 2: over the decades to come.
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  Speaker 1: Are there any investments that you're considering at the moment
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  Speaker 1: that you're thinking, Wow, this is actually our conviction on
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  Speaker 1: this is high. We could take a ninety percent stake
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  Speaker 1: or something like that.
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  Speaker 2: So not at this particular point in time, but I'm
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  Speaker 2: sure over the next years that are ahead of us,
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  Speaker 2: we will have those conversations.
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  Speaker 1: Look forward to seeing it. Private equity is interesting. Obviously
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  Speaker 1: the funds has done very well out of its private
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  Speaker 1: equity allocations. Therese now talk about key we Saber Funds
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  Speaker 1: in this market also being allowed to get into private
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  Speaker 1: equity to enjoy the returns The likes of the super
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  Speaker 1: fund have had. But if key WE SAB funds domestically
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  Speaker 1: are going to invest in more private equity options, does
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  Speaker 1: that pose a competitive challenge to the super fund.
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  Speaker 2: Or I think it's actually more of a liquidity challenge,
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  Speaker 2: particularly for those WE save funds.
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  Speaker 1: And I have a little bit.
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  Speaker 2: Of experience here, having come from the Australian superannuation industry,
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  Speaker 2: where there are reasonably high allocations to those illiquid assets.
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  Speaker 2: One of the reasons we can invest in long term
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  Speaker 2: investments such as infrastructure private equity is because of our
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  Speaker 2: true intergenerational mandate, where the fund is projected to double
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  Speaker 2: over the next ten years and is modeled by Treasury
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  Speaker 2: to be one hundred and eighty five bid in by
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  Speaker 2: about twenty and forty. So I'm not so sure it's
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  Speaker 2: a competitive challenge for us. I mean, we're already competing
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  Speaker 2: with other large institutional investors in the global.
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  Speaker 1: Marketplace for opportunities.
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  Speaker 2: I would say that it's probably more liquidity consideration for
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  Speaker 2: those actual key WE providers.
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  Speaker 1: Do you think that they might find that to challenge themselves? Then,
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  Speaker 1: because we now that private equity is a liquid people
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  Speaker 1: will want to withdraw the key WE saver sooner and
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  Speaker 1: the government will want to withdraw from the super fund.
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  Speaker 1: Do you think that they're kind of about to head
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  Speaker 1: a realization so easy.
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  Speaker 2: I'm probably not in a position where I can comment
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  Speaker 2: on the capabilities of those who are managing the key
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  Speaker 2: we saver funds at this point in time. I have
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  Speaker 2: only been in the country for five months.
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  Speaker 1: You have, yeah, So I totally appreciate that infrastructure is
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  Speaker 1: obviously interesting. There's an allocation to that from the super
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  Speaker 1: fund already. But this government, you know, will obviously want
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  Speaker 1: to solve our infrastructure deficit. It's going to be expensive.
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  Speaker 1: The super fund prefers public public partnerships. What opportunities do
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  Speaker 1: you see there to help fund infrastructure with this new government.
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  Speaker 2: So, as a true long term investor, we are always
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  Speaker 2: interested in potential infrastructure investments. Under our legislation, we must
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  Speaker 2: invest on a prudent commercial basis, and we have operational independence,
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  Speaker 2: which has been a very important contributor to our success
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  Speaker 2: over the longer term. So we will engage on any
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  Speaker 2: potential investment coming into our portfolio, but we will make
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  Speaker 2: the decision, as I said, on a prudent commercial basis.
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  Speaker 2: If I just think about one of the examples of
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  Speaker 2: an infrastructure asset that we are currently investigating here in
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  Speaker 2: New Zealand, the Taradarchy offshore wind project. We are an
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  Speaker 2: infrastructure investor, we are not an infrastructure developer, and so
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  Speaker 2: in that instance we have actually partnered with Copenhagen Infrastructure
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  Speaker 2: Partners and it's that sort of joint venture that we
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  Speaker 2: will always look to put in place to investigate infrastructure opportunities,
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  Speaker 2: whether it be in New Zealand or offshore.
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  Speaker 1: So in that type of opportunity, you wouldn't develop the asset,
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  Speaker 1: but you would in a way bank roll it and
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  Speaker 1: then earn the return when it's sold.
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  Speaker 2: Well, the Copenhagen Investment Partners actually has experience with the
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  Speaker 2: development work. So and it's those sorts of joint ventures
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  Speaker 2: where we have an operating partner that has both the
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  Speaker 2: operational experience and the potential capital that we always look
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  Speaker 2: to do a joint venture with. So you know, there
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  Speaker 2: is work underway there. It's a very complex project, but
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  Speaker 2: it's those sorts of arrangements that we look to put
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  Speaker 2: in place before we have to make a decision as
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  Speaker 2: to whether or not we're going to contribute our capital.
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  Speaker 1: This fund is projected to double in the next ten
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  Speaker 1: to twelve years to just over one hundred and fifty
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  Speaker 1: billion dollars, about the same time as when the government
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  Speaker 1: is going to want to start with drawing some money
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  Speaker 1: out of this fund. What are the challenges that you
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  Speaker 1: foresee the super Fund facing as it doubles in size.
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  Speaker 2: So our challenges probably are not that different from any
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  Speaker 2: other business as you get larger and larger. So we
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  Speaker 2: need to be able to remain nimble and agile. We
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  Speaker 2: need to make sure that our processes are scalable. And
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  Speaker 2: one of the key ways that organizations like this do
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  Speaker 2: that is through the efficient use of technology. And so
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  Speaker 2: we're currently doing a large piece of work around enhancing
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  Speaker 2: our investment, data and technology capabilities.
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  Speaker 1: And so that's one example.
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  Speaker 2: Culture is another key component of organizations like this, where
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  Speaker 2: you need to make sure that you know, people continue
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  Speaker 2: to be highly engaged in the work that we do,
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  Speaker 2: and you know, we can attract smart people doing really
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  Speaker 2: interesting jobs.
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  Speaker 1: Do you think that the super Fund's current portfolio max
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  Speaker 1: is right for that? Dublin, as you say, in less
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  Speaker 1: than half to international and domestic equities about tenberce, direct
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  Speaker 1: investment about a quarter and alternatives. Do you feel like
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  Speaker 1: that needs to change or it's good where it is.
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  Speaker 1: Look Undoubtedly, it will change over time.
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  Speaker 2: And I think if you look at the evolution of
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  Speaker 2: the portfolio since it was first invested in two thousand
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  Speaker 2: and three, you will have gradually seen quite a few changes.
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  Speaker 2: So undoubtedly the question to that is, yes, do I
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  Speaker 2: know what that looks like today? I don't have a
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  Speaker 2: crystal ball, I'm afraid. What I would say is, though
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  Speaker 2: we are the investment team, I have a large, strong
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  Speaker 2: investment team. We have about seventy people, and so you
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  Speaker 2: know their job day to day is to continually look
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  Speaker 2: at all the investments we have in the portfolio today
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  Speaker 2: could be the next best idea to actually come into
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  Speaker 2: the portfolio. On top of that, on a five year basis,
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  Speaker 2: we are doing a reference portfolio review. Effectively, the reference
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  Speaker 2: portfolio is the starting position for our every investment opportunity.
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  Speaker 2: So effectively, it's an expression of the guardians the board's
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  Speaker 2: risk appetite statement.
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  Speaker 1: It's very growth oriented.
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  Speaker 2: It's eighty percent equities, twenty percent fixed income. And the
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  Speaker 2: idea is that you know that is the risk profile
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  Speaker 2: that is appropriate for true long term investors such as
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  Speaker 2: the Guardians.
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  Speaker 1: You've come from the Australian superanuation industry, which has done
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  Speaker 1: far better than New Zealand's entire superranuation industry. Correct me
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  Speaker 1: if I'm wrong, but it's worth about three point six
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  Speaker 1: trillion dollars in Australian dollars, which is incredible compared to ours.
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  Speaker 1: What do you think we can learn coming from across
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  Speaker 1: across the ditch. What do you think that we need
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  Speaker 1: to catch up on that Australian has bid us AD
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  Speaker 1: so far.
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  Speaker 2: Well. Of course, it's a very different environment in Australia
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  Speaker 2: because superannuation contributions are mandated and with that, over the
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  Speaker 2: years that I was working in that industry, you know,
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  Speaker 2: there has been an enormous increase in regulation over that time,
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  Speaker 2: and so you know, it is a different environment here
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  Speaker 2: in Australia. I'm sure there are lots of lessons that
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  Speaker 2: could be learned. You nominated one of them yourself being,
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  Speaker 2: you know, potentially increased investment in unlisted assets. But yes,
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  Speaker 2: so the Australian superannuation industry is is, you know, it's
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  Speaker 2: it's matured a lot over the past twenty or thirty years,
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  Speaker 2: but with that has come increasing regulation and focus in
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  Speaker 2: terms of member expectations for how those funds will be invested.
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  Speaker 1: Just looking at your financial statement for the year just ended,
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  Speaker 1: the government contributions were one point six billion dollars that
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  Speaker 1: you paid back one point five billion in tax, so
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  Speaker 1: nit you barely got anything. The last CEO, Matt Winery,
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  Speaker 1: told me that that was pretty dumb that you had
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  Speaker 1: to pay tax. How do you feel about it, Joe.
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  Speaker 2: Well, obviously that's a question for the government. Look, we
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  Speaker 2: at the end of the day, if we were not
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  Speaker 2: paying tax, it would create cost savings and efficiencies for us,
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  Speaker 2: and you know, the actual size of the fund would
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  Speaker 2: increase over time if that withdrawal was not being made.
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  Speaker 2: But as I said at the day, that's you know,
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  Speaker 2: something that's for the government to decide.
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  Speaker 1: It would be much easier to get to that one
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  Speaker 1: hundred and fifty billion dollar size doubling in size if
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  Speaker 1: you didn't have to pay tax.
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  Speaker 2: Though, well that that number is based on Treasury is
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  Speaker 2: current modeling, so I would assume that it actually does
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  Speaker 2: incorporate the tax. So yes, fundamentally your comment is correct,
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  Speaker 2: the fund would grow larger over time.
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  Speaker 1: Thank you so much for your time, Joe. I love
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  Speaker 1: it to mean you. I'm sure we'll do this again.
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  Speaker 2: Thank you,