Bayly Andrew: New Zealand Superannuation and Retirement Income Amendment Bill — In CommitteeText is incorporated into the Bound VolumeBayly Andrew: New Zealand Superannuation and Retirement Income Amendment Bill — In Committee[Sitting date: 30 June 2015. Volume:706;Page:4909. Text is incorporated into the Bound Volume.]ANDREW BAYLY (National—Hunua): What a fascinating night. I have sat here and listened intently. I have listened to lawyers. I have listened to accountants. I have listened to political people and I am just staggered that people cannot understand a relatively simple piece of legislation. Let us just go back to first principles. This bill is obviously dealing with a good piece of what has gone on with the New Zealand Superannuation Fund set up by Dr Michael Cullen as we all know. It seeks to address superannuation for the future and to have a forward fund to be able to pay for it. We all know that it was set up in 2003 and has achieved outstanding results but what I want to remind you about are the two key underlying principles that Dr Cullen had for the Superannuation Fund. One was that the fund was going to grow to a size and we wanted to make sure that it did not have control of markets in New Zealand. To put that in context we have now got a fund worth $29 billion—Grant Robertson: Could have been more.ANDREW BAYLY: —and we know what the New Zealand Exchange is worth do we not Mr Robertson? It is worth about $100 billion. So at roughly 29 percent—if we applied it all to the New Zealand Exchange—it would mean we would dominate the New Zealand Exchange. So quite rightly we put into place some clauses to make sure that the Superannuation Fund could not control direct investments—right—other than real property.The second thing is we wanted to make sure it was free from political interference right? Part 1 of the bill deals with three key issues. Let us just deal with the first one which is about permitting fund investment vehicles as an appropriate investment vehicle. It is interesting right? I do not think that many people actually understand what they are. They are actually a very common vehicle for fund managers particularly if you use a “fund of funds” approach. I am sure many of you know what that means but for a large fund like the New Zealand Superannuation Fund you will use professional fund managers to manage certain assets.What this bill is doing after all those years since the fund was set up in 2003 is trying to modernise the situation at the behest of the Guardians of New Zealand Superannuation. These usual investment vehicles called fund investment vehicles are now going to be established right? The change permits them to be used to hold non-controlling equity stakes in direct equities or investment funds and secondly to hold stakes or to have influence over managed funds—that example I gave you before—that subsequently invest in equity or debt instruments like Treasury stock Government bonds and commercial bills.The third thing it permits is to hold investments in real property. This is where there is that little nuance I spoke about before—for instance the New Zealand Superannuation Fund does hold real property in the form of forests and stuff like that but the Act precludes it from holding directly the shares or having control over the entire equities like a company. So there is a difference between having control of the shares of a company as opposed to having control of the real property like forests land and all those other good things that the Superannuation Fund is entitled to invest in and should be investing in. So this deals with this.The other thing I heard early this evening was all about the passive fund and active fund. Well can I just correct you on that fault. This bill does not enable it to particularly become an active fund. The purpose of this bill does not address that issue. This is about putting an intermediary between the New Zealand Superannuation Fund managed by the guardians and what it has ultimately invested in right? So we are all on the same page hopefully on that aspect. Related to that at present the guardians cannot delegate or grant powers of attorney they cannot appoint an investment manager and they cannot appoint a custodian. I have got to say to you that it is absolutely unusual for funds not to be able to do this so what this bill does again is to provide normal operating rules for a fund such as a massive successful fund like the New Zealand Superannuation Fund.The second thing that Part 1 deals with is protecting the guardians against ultra vires acts that they may undertake. This means that if for instance the guardians through the fund manager enter into deeds contracts or agreements and all the normal things that you expect them to do and for some reason those acts are deemed to be ultra vires this part deals with this under new section 49A in clause 5 to permit those activities and transactions to take place and not be subject to a court challenge provided—and this is the overriding thing—that those transactions were all entered into in the normal course of events and there was nothing unusual about the extent of the activities that were undertaken.The third thing that Part 1 does is to confirm that the fund investment vehicles are not subject to the Official Information Act 1982 and the Ombudsmen Act 1975. Again we have heard a bit about this earlier on from the Opposition. Just to be clear what this bill provides for is that the fund investment vehicles are not subject to the scrutiny of both the Ombudsman and the Official Information Act but—but—the guardians still are.Again what we have got here is a comprehensive set of measures that will mean that these fund investment vehicles can be put in place like virtually any other fund in the world and that they can invest in a range of equities debt instruments and real property albeit they cannot control the equities that they hold because as I noted before they would have a huge dominant effect. Just to give you the context in that final point if you look at the range of New Zealand investments that the New Zealand Superannuation Fund is currently invested in the highest investment that it has got is Z Energy at 20 percent and Metlifecare also at 20 percent. All the rest are at about 10 percent and 8 percent of the New Zealand stock market.I think that this is a very good piece of legislation. It brings the New Zealand Superannuation Fund up into modern standards of practice and for that reason I commend it to the Committee.