Super Fund CEO Adrian Orr on how the fund is tracking, why he is so keen on growth assets, its NZ investments and the fund's social conscience

Super Fund CEO Adrian Orr on how the fund is tracking, why he is so keen on growth assets, its NZ investments and the fund's social conscience

By Amanda Morrall

The New Zealand Super Fund, which hit a fresh high of NZ$20.08 billion in September, still has a long way to run before the investment will be tapped for cash.

The fund's first pay-outs aren't due until 2029/2030.

Given the investment horizon, Super Fund CEO Adrian Orr believes the fund's money managers can afford to go big; on equities.

Orr told interest.co.nz in a Double Shot interview the fund's growth oriented focus has so far served it well.

"We're very pleased. We set out an expectation at the beginning based on the construction of our fund, working back from our purpose which was a long-term horizon (therefore) we have a high proportion of our assets exposed to global equities and growth investments. We thought we'd get the risk free rate of return (with the Treasury Bill) plus about 2.5% per annum above that as a return expectation. As it turns out, more by chance than planning probably, we are basically there.''

Since inception, the Fund has returned 7.57% per annum.

The Fund, conceived in 2003, will help Government pay for the increasing cost of the universal superannuation. 

Between 2010 and 2050 the number of recipients of New Zealand Super is set to balloon from 500,000 to 1.3 million.That's compounded by a five-fold increase in the number of people 85 years-old and over whose increased life expectancy will add more pressure on the system. (See also Amanda Morrall's story on an 'uneasy reality.')

To date, Government has contributed $14.88 billion to the Fund which has returned $2.32 billion to the Crown in tax.

Orr said the fund's performance shows "the benefit of remaining focused on long-term value, having the fortitude to stay the course, and concentrating on the things we can influence.”

'Deliberately look for risk'

He said growth assets would remain a priority despite uncertainty in the market.

"Our challenge is to deliberately look for risk and risk we believe we'll be rewarded for taking. That's the only way you'll get return. It's about being disciplined and saying 'what kind of risk are we prepared to take on and will we be rewarded for that'."

In its Annual Report for the year to 30 June 2012, the Fund's new investments are highlighted. They include a US$100 million investment in a Chinese infrastructure fund; the purchase of a 1/3 share in Christchurch-headquartered Scales Corporation; and additions to its portfolio of local dairy farms, now worth $110 million.

Orr said despite a slow down in China, the Super Fund's fund managers were comfortable with a greater exposure to the country.

"It's one of the many direct investment activities we are taking to ensure our fund is fully diversified but also getting exposed to areas we think will be continued good profit, high growth over that 20 plus (years) time horizon we're interested in."

He said the Super Fund's fund managers have teamed up with investment giants in Asia to mitigate risk.

24% of the fund is invested in NZ

The annual report also details progress made in implementing a 2009 direction from Minister of Finance Bill English to identify and consider opportunities to increase the allocation of New Zealand assets in the Fund.

"Over three years, the proportion of the Fund that is invested in New Zealand has increased 1.6% and the value of the Fund’s New Zealand investments has grown by a billion dollars,'' the report states.

"As well as its dairy farm portfolio and stake in Scales Corporation, the Fund’s New Zealand investments include more than $1 billion invested in the local share market, a 40% share in Kaingaroa Forest and a 50% share in Z Energy."

All up, 24% of the funds assets are New Zealand based.

Orr said social governance issues have become a greater priority for the Fund since he came on board five years ago and were behind a decision this month to cut three investments from its portfolio. Freeport McMoran, KBR, Tokyo Electric Power Company and Zijin Mining Group were dumped from the Fund over allegations of human rights violations, environmental concerns and bribery allegations. 

"We're very focused on environmental, social and governance issues to the point where we have a clear check list before we invest to see if we should be engaging with companies who might be in breach of the standards we set."

Orr said the Fund's own standards require that any companies it invests in must abide strictly by NZ law, international law, the United Nation's Principles for Responsible Investment and any global agreements to which New Zealand is a party. It also excludes companies that invest in tobacco or weapons.

"It's not a trivial thing. We are one of very few funds globally who follow this but it is a growing trend,'' said Orr.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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15 Comments

100 million invested in a chinese infrastructure fund and yet china would have to have one of the worst track records as far as human rights go as well as virtually no enviroment al policy.
is this guy a joke or has he turned a blind eye to china because it's one of our largest trading partners.

Given the investment horizon, Super Fund CEO Adrian Orr believes the fund's money managers can afford to go big; on equities.
 
And yet Bill Gross, the guru of fund management, says otherwise.
 
Could Mr Orr present his credentials to justifiy his declaration beyond a similarity to Chris Moller expounding upon the finer arts of rugby after he took up the reins at NZRU? 

7.57% p.a. is a pretty good result. Especially given the turmoil since 2003.
Not quite sure about the 'Internally executed arbitrage', referenced on page 22 of the report.
"we can generate returns
by buying it on one exchange and selling it on the other for a
higher price, with no economic risk."

When someone says 'no economic  risk', doubts do spring to mind.
But 7.5% return, overall, I would be happy with that.
 

What are you on about? - they could have stuck with Government debt since inception and cleaned up and saved NZers a fortune in lost fund management fees. The US Federal Reserve's asymmetric bias to ease and hold down long end yields since Greenspan took over is the stuff of legends. Accolyte Bernanke was appointed to follow in his footsteps.
 
What happened to our guy? - did he get lost in a maze of ideology?

Well, the investment world is, and always has been overflowing with "could have" war stories,  Stephen.
I could have ( and should have) bought Microsoft shares twenty years ago,.
The super fund could have bought Apple shares ten years ago.
We would all be Gazillionaires, based on what we could have done.
 
What i am on about is that, 7.5% p.a , is not a bad return over the period.

You might be a carnival barker for the Cullen Fund - but at least stick to the facts - Let's make it easy and have a look at page 2 of the annual report. - where does it mention a return of ~7.57% you keep referring to?
 
Let's exclude the years my grandmother made money throwing darts at stock certificates on the wall, and review the five year performance - a measly 1.58% pa returm since the onset of the GFC. I rest my case and if investment wars are to be fought we need to find them first to engage in a manner befitting the salaries being paid to the fund's minders.  

 
Stephen,
If you listen to the interview, Orr talks about the return since inception. It's also here below in bold in the release that accompanied their annual report.
Amanda
 
The New Zealand Superannuation Fund reached an end-of-month record high of $20.08 billion in September.
The Fund, which commenced investing in 2003, was set up by the New Zealand Government to help pay for the increasing cost of universal superannuation. It is managed by the Guardians of New Zealand Superannuation.
To date the Government has contributed $14.88 billion to the Fund, which will start paying out money to help fund super payments from around 2029/2030.
Since inception, the Fund has returned 7.57% per annum, 2.41% p.a. (or $2.7 billion) ahead of the Treasury Bill rate, New Zealand’s risk-free investment benchmark.*
Over the same period the Guardians’ active investment efforts have contributed 0.57% p.a. (or $1.0 billion) ahead of the Fund’s reference portfolio return, its passive investment benchmark. The Fund has also returned $2.32 billion to the Crown in tax.*
Chief Executive Officer Adrian Orr says “the Fund has benefited by sticking to its long-term growth strategy and investment beliefs during volatile times.”
“These results show the benefit of remaining focused on long term value, having the fortitude to stay the course, and concentrating on the things we can influence.”
“Our weighting to growth assets leads to ups and downs in short-term performance. The crucial factor is how the Fund performs over the long term – in our case 20-plus years.”
“The Fund is well placed to take advantage of our long-term investing horizon and exploit the market’s current risk aversion.”

Hi Stephen,
To explain, the 7.57% refers the return since inception as at 30 September 2012.  The Annual Report is for the year ended 30 June 2012.
Best regards, Catherine Etheredge, NZ Super Fund

My apologies, but I never watch the videos - too time consuming and no hard copy to cut and paste into my retorts. 

Let's exclude the years my grandmother made money throwing darts at stock certificates on the wall
 
Lol.  yep, a bit like claiming to be a property magnate having flipped a few successfully between 2002-2007 yet ending up with even more exposure in 2012.
 
 
 
 
 
 

There is one guy who is really good at generating consitent, above average returns, regardless of the prevailing market conditions.
Unfortunately he is a bit tied up at the moment, doing 150 years at  the Federal Correctional Institution in Butner, North Carolina.
But hey, if it's smooth returns you want, give old Bernie a call.

Worry not - These guys are real smart - have been buying Super Cats ie Super catastrophe insurance policies - obviously the ones no one else wanted.  I wonder why.
They will be the ones Ajit Jain passed on at Berkshire Re so you can imagine the quality and pricing. How on earth do they think they are better at pricing risks than Berkshire  Re who have spent over 40 years doing this very successfully and making Buffett one of the worlds richest men in the process?
My money's on Jain !
There is no shortage of capital at Berkshire - Over  US $ 40 B cash when I last looked.
The stupidity of these types of  so called " investments " leaves one shaking ones head.

JB - you are on the money -  those that know Berkshire Hathaway have been telling me for years the insurance float management operation is second to none -supplied the cash for  Munger and Buffet to play with in the stockmarket. The latter is reputed to be selling along with others. Could be spin - you never know. 

Coming doom ?
 
Not necessarily - but something close to it in some UST note dealers minds?

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