Paul Costello and David May bring about the right outcome

Paul Costello

Paul Costello
* BA.
* Graduate diploma business administration.
* Chief executive NZ Superannuation Fund.
* Former high school teacher. 

Hutt Valley High School teacher Noeline Hannan was blown away when her charismatic history colleague, Paul Costello, swapped the blackboard for a career in financial services.

"He was a wonderful teacher. We had plugged him as a future principal," recalls Hannan of the specialist in Elizabethan and modern history, now chief executive of the $8.8 billion New Zealand Superannuation Fund.

Costello, 49, has not taken a direct route to what is considered the plum job in the money management business.

He came by way of Australia, headhunted in 2003 from the $4 billion retirement savings investor, the Superannuation Trust of Australia, where he had risen to chief executive after 15 years in the superannuation industry across the Tasman.

The fund, dubbed the Cullen Fund, after its instigator, Finance Minister Michael Cullen, has shown an impressive growth in assets since it invested a $2.4 billion taxpayer contribution in public and private markets in October 2003.

The fund has its political and business detractors, such as the Business Roundtable, whose executive director, Roger Kerr, calls it "a crock". He doubts whether the fund will be able to retain its independence from meddling governments in the long term.

But even Kerr and Opposition finance spokesman John Key have nothing but warm praise for Costello.

Key, also a global investment market veteran, says North Canterbury-born Costello is "a world-class individual".

"This guy has done a sensational job for the fund, not just in terms of the results, which are impressive. He's done a sensational job of establishing the right framework for the place and the right outlook - it's a very professional organisation."

Would National keep Costello on if it came to power in 2008?

"No question."

For someone who declined to talk to the Business Herald because it is not "the culture" at the fund for personalities to take centre stage, Costello gets glowing reviews from a wide audience.

NZX chief executive Mark Weldon says Costello is a "bloody good guy".

"Paul does an outstanding job of decision-making with a pretty finite set of resources. Compare his resources with equivalent private sector funds with the same of amount of assets under management and it's pretty skinny."

The fund has eight full-time investment professionals and, last year, received just $3.4 million from the Government to cover its annual costs. This includes payment for six directors, or "guardians", of the Crown entity.

Costello, who earns between $340,000 and $350,000 a year, and his highly regarded chief investment officer, Paul Dyer, have so far awarded 23 external asset management contracts. Weldon notes that at least 19 of them are outperforming the benchmark, which he calls "extraordinary".

"Some of it is good luck but most is good management, choosing the right fund managers."

Weldon also rates Costello for taking an early conservative approach and then moving to active risk investment.

"He has shown he is not afraid to be opportunistic. In today's environment, fund managers who think they can drive calendars or stick to a rigid asset allocation model will lose out on the alpha [upside]."

Weldon says it's important the fund performs well.

It is expected to have assets of $120 billion by 2030 to supplement the retirement finances of an ageing population. By then one in four people will be over 65.

Even investment market players who would only talk about Costello on the condition of anonymity - sometimes an opportunity to stick the knife in - are complimentary.

"He's a very, very capable individual. He's absolutely ideal for the fund," says one.

"You need somebody who is very competent but you also need someone with a good face, who speaks well, who can be diplomatic with the many constituencies, but without having a huge ego wanting to impress people and be in the headlines."

Costello has the right mix of technical and personal skills.

"It's a unique talent."

Another key strength is his ability to appoint the right money managers, monitor them closely and sack them quickly if they don't perform, says a market source.

His former boss at Superannnuation Trust Australia, Geoff Ashton, says Costello more than doubled that fund in his three years as chief executive.

"He's a measured individual, shows mature judgment in all he does. His other real strength is the ability to build a strong management team - that is one of the great legacies he left.

"He took us into areas such as alternative assets, such as private equities and infrastructure and they became important in our strategic asset allocation - that has now become quite a remarkable strength of our fund."

A source said Costello beat a lot of global competition for the job, winning because he had the right combination of technical and personal skills.

So why is it such a plum job?

Because it is at the cutting edge of the investment management industry and because the fund will be huge, says one commentator.

"It's creating new benchmarks for New Zealand, creating new standards, and there's huge potential for a massive leadership role. New Zealand fund managers have not really got into alternative assets. Most invest in public market assets like the sharemarkets and the bond market.

"Alternative assets can be infrastructure, funding a new road, buying forests...The imagination is unlimited, it could be public works or oil exploration. That is where the real development is in fund management overseas."

Because no money will be drawn from the fund until 2022 at the earliest, Costello has a unique opportunity.

"There's nothing better than running a fund when all you have is money coming in and not a cent going out for 17 years or probably more. It allows you to be far more creative and visionary," says one market expert.

Simon Botherway, of Brook Asset Management, says Costello is highly regarded.

"He's competent, and he's done a hell of a lot with being slimly resourced. It's quite a remarkable achievement."

Key adds that he is not political despite being "in a sense politically appointed. But that is where the politics start and finish. He gets on and does the job." 


Super Fund
* A Crown entity.
* Assets now $8.8 billion.
* Started with $2.4 billion in 2003.
* Aiming for $120 billion by 2030.
* Invests in public, private and "alternative" asset markets.
* No drawdown for national super for at least 17 years.

  
David May
* BSc (hons) mathematics.
* Chairman, NZ Superannuation Fund.
* Deputy chairman, Government Superannuation Fund.
* Director of Southern Cross Medical Care.  

Ask anyone in Wellington business circles about David May, chairman of the New Zealand Superannuation Fund, and sooner or later they all say he's a very "un-actuary-like" actuary.

He has a wicked sense of humour and is a real "people's" person.

A bit harsh on other actuaries, apparently known more for their superior intelligence, mathematical wizardry and sober habits than for their ability to liven up a party.

But May's people skills don't extend to talking about himself. Like the fund's chief executive, English-born May, thought to be in his 60s, declined to be interviewed. Their CVs were also out of bounds.

May was appointed chief watchdog of the so-called "Guardians" of Finance Minister Michael Cullen's super fund in 2002.

But he is probably better known as a former managing director of Colonial Life New Zealand and former chief executive of financial services specialist Jacques Martin, both now owned by the Commonwealth Bank of Australia. May retired from Colonial Group after 27 years in 2000.

A former employee says people matter to May.

"He was very well-liked, he created a family atmosphere at Colonial. He is very, very intelligent, not to be underestimated. He assimilates information like there's no tomorrow."

A Wellington businesswoman, who also declined to be named, says May is self-effacing and modest.

"He has a great sense of humour and is a great story teller. He's good at explaining complex issues in simple terms. He seems a pretty happy man, he likes his life and leisure activities." They include golf and bridge.

John Grant, director of General Electric's mortgage business in New Zealand, Australian Financial Investments Group, worked with May at Colonial and describes him as a visionary.

"He's very analytical, but very personable. He's an interesting character and very intellectual, always wants to get involved with things. It's hard to find anyone who has a bad word to say about him."

Grant believes May will make a big success of the fund, but will test his colleagues' thinking along the way.

"We will end up having world's best practice as a result of David being involved."

An investment market source said the real test of the fund's success was that it would slowly cease to be a political issue.

"That's exactly what's happened and David has played a huge part in that. The fund had to keep its head down, be set up well, and perform well, otherwise Opposition parties would keep attacking it."

An analyst says May's chairmanship style is highly consultative.

"David asks everyone for their opinion. He makes everyone feel involved, and he's incredibly fair and incredibly knowledgeable."

NZX chief executive Mark Weldon says the "good things happening [at the fund] start at the top".

"Clearly, he is making governance choices that allow quick decision-making and opportunistic approaches. He is empowering his chief executive."

Weldon says May has good judgment.

A friend and colleague says May is a focused man capable of getting to grips with fund issues quickly.

"He doesn't let peripheral things cloud his approach.

"As a person, he's delightful. He has a huge store of dreadful jokes which he manages to tell with such an infectious giggle that people laugh at them.

"He's a very good friend, someone who will give you good honest feedback."

Another colleague says May is not a political animal, but understands politics and how to deal with politicians.

Business Roundtable executive director Roger Kerr, a former Colonial Group director, says May is savvy and sensible; and there is no reason to think May is a political appointment.

May's "un-actuarial" traits also extend to holidays.

He thinks nothing of "driving through the top of China", says one colleague, and favourite birthday presents from wife Christine are tickets for extreme adventures.