NZ Super Fund encouraged to bed in changes, set up derivatives policy

The New Zealand Superannuation Fund, which was set up to partially cover the cost of a ballooning baby boomer pension bill, has been encouraged to bed in a series of organisational changes over the past few years, and implement a new policy managing its investment in derivative products.

The two recommendations are included in the five-year review of the fund undertaken by Promontory, which found the Guardians of New Zealand Superannuation, which manages the fund, "run a very professional operation" and have "raised the overall standard of their investment activities and governance materially" since the 2009 review. The report stressed that its recommendations didn't identify fundamental weaknesses, rather that there is always room for improvement.

"We believe many aspects of the Guardians' operations are 'best in class'," the Promontory report said. "As with any organisation, however, there are always areas where improvements can be made."

The fund was set up by former Finance Minister Michael Cullen, and has swelled to about $26 billion under management since its inception in 2003, delivering after costs annual returns of about 9.86 percent. The current government froze contributions to the fund in 2009 in the wake of the global financial crisis, and doesn't anticipate resuming them until it's back into a cash surplus in 2020.

Promontory recommended the Guardians consolidate changes that have been made in recent years, which the fund manager agreed with, and to develop a clear policy on investing in derivative products, which was already underway.

Other recommendations included establishing a chief risk officer and compliance officer, streamline its procedures manual, broaden the mandate of its risk committee, update its methodology in determining the cost of managing the portfolio and lift the board remuneration.

Guardians chairman Gavin Walker welcomed the report, saying it was "pleasing to get independent confirmation from Promontory that the Guardians' overall investment approach is consistent with best practice by international sovereign wealth funds."

(BusinessDesk)