KEY POINTS:
New Zealand Superannuation Fund guardians are required to invest on a prudent, commercial basis and manage and administer the fund consistent with best-practice portfolio management. They must maximise returns without unduly risking the fund and must avoid prejudicing New Zealand's reputation as a "responsible member of the world community".
But the legislation that created the Guardians of New Zealand Superannuation as a Crown entity in 2001 does not define what the terms of the guardians' investment mandate mean - that is left to the guardians to decide. However, their rules must be consistent and responsible.
For instance, they cannot invest overseas in a sector or asset that would be illegal in New Zealand. They are also committed to a "responsible investment" regime, based on the United Nations' Principles for Responsible Investment to which the fund is a founder signatory.
This UN initiative, which is in its infancy, provides a framework for the fund to collaborate with other international institutional investment funds to engage with companies and encourage improvements in social, environmental and governance practices.
The guardians' board members are appointed by the Minister of Finance.
The minister has power under law to give them directions on the Government's expectations of the fund's performance but he cannot issue a directive that is inconsistent with the guardians' duty to invest the fund on a prudent, commercial basis.
The fund works with a number of external investment managers to carry out its investment strategy and to date has no complaints about their performance.
Since September 2003 the fund has operated a strategic asset allocation plan (SAA). After a review in late 2004 there was a significant longer-term increase in the weighting to property and alternative assets and a reduced weighting to listed equities.
However, at June 30, 2007, global large-capitalisation equities still dominated the plan and they will remain the largest investment sector in the longer term.
