Investment chief is free to look ahead for 20 years-plus
When it comes to risk allocation, Matt Whineray has to make some big calls.
As chief investment officer, Whineray is one of the key decision makers at the $26 billion NZ Superannuation Fund, created in 2001 with the aim of helping bankroll the future cost of Kiwis' super entitlements.
About 70 per cent of its investments are passive. This is known as the reference portfolio, which is set by the board and largely made up of New Zealand and global equities (80 per cent) and fixed income securities.
Whineray and his team then aim to add value to the fund through active investments, which are benchmarked against the performance of the reference portfolio.
"That level of active investment will change through time depending on what the opportunities look like," Whineray says.
The overall fund has outperformed the reference portfolio by 1.2 per cent a year, or $3.2 billion, since its inception.
Whineray says some of the fund's successful active investments include its timber assets in New Zealand and overseas, as well as its infrastructure investments such as Australian toll roads.
Another contributor to the fund's recent success - it has posted returns of 17 per cent a year over the past five years - has been its "tilting programme".
That involved increasing the fund's exposure to equities during the global financial crisis, in order to turn that period's slump in asset prices into a buying opportunity.
Whineray admits it was a scary time, but says the fund had to make the call that "the relationship between risk and returns" had not completely broken down.
He says the process of making decisions about investments often involves "ruling stuff out".
"The way we think about that is to say, 'how are we going to be most confident that we'll end up with a portfolio that meets our mission?' We do that by thinking about what our endowments are as investor."
Whineray says the fund's endowments include its long time horizon - with payments back to the government not required until 2031 - certainty of liquidity and its sovereign status, which provides some tax benefits.
"We think about our investment horizon as 20 years-plus, so we can take risk as long as the returns will eventuate over that period," he says.
Whineray says the fund is particularly wary of investing in businesses that rely too heavily on management skill. "We have a belief that skill is quite rare," he says.
Today the fund is on the lookout for potential agricultural investments overseas.
"At the moment our rural exposure is really limited to New Zealand dairy," Whineray says, and the fund has been assessing opportunities in South America, Australia and the United States. "Finding stuff at the right price is difficult and finding stuff at the right scale is part of the issue as well." He says the goal is to invest in farming, rather than processing, assets.
"We can get plenty of exposure to processing through the listed markets, but you can't get exposure to the farm assets in the listed markets and that's why we think it's a useful diversifier for us." - Christopher Adams