Watts SimonSIMON WATTS (National—North Shore): Well thank you very much Mr Speaker. An absolute pleasure to rise to speak on the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill first reading. We've heard a range of comments this afternoon in regards to this bill and I'm going to spend a little bit of time outlining a few of the areas that we've observed will need to be explored as this progresses through the select committee process. As our shadow finance spokesperson and deputy leader Nicola Willis has articulated National are supporting this bill cautiously through to select committee. That is for a variety of reasons that we will canvas as we go through.There was one reference from a prior speaker that did rise my eyebrows and that was that one can't be apolitical in regards to the management of investments". How timely that comment is—quite an insight into the context that actually it's impossible for someone to be apolitical. Well we'll just leave that for Kiwis to have a think about whether they believe that or not.In regards to this legislation it's quite interesting in terms of that fact that we'll need to provide the ability for the New Zealand Superannuation Fund to be able to take a controlling interest in regards to investments. This is a long-term investment fund—primarily in the nature; in terms of its investments it's passive. The reality of what we're looking at here is for the Superannuation Fund to be able to take primarily more active fund investments and controlling interests which basically means that they have the power and the ability to influence that and decisions through that.I think the question and the issue that this particularly raises is in regards to having a clear governance situation. What I mean by that is that one of the challenges—and I'm sure that this will be thought through in the select committee phase—is how do we ensure that the impartiality that is implied in regards to investments where the Superannuation Fund does have a controlling interest because that impartiality is one of the key pillars of good strong corporate governance. One of the concerns rightly so by Kiwis is that when the Crown has the ability to have a controlling influence then impartiality is very much a real risk and real issue.Some of the considerations around how to mitigate that—whether that is through having no management roles on the entities in which the Superannuation Fund invest in having no management influence or even going to the point where the Superannuation Fund ensures there are independent board members that are in there or actually an independent majority on the board. I think all of those considerations around governance separation do need to be considered through this and I'm confident the select committee through feedback from experts and across the sector will take into account some of those key components. Because it is important and political influence is real. I mean if you give a scenario of say the Superannuation Fund was looking at undertaking an offshore wind farm investment for example and the Minister for the Environment came along and said "Well you know I really want this to tick a couple of boxes on my priorities and promises."—I mean hypothetical of course but you can see where the element of political influence may drive a decision. And the prior speaker over there referred to it before. He said "Don't worry it's in the legislation that there needs to be prudent commercial basis." Well the challenge with the word "commercial" when you've got 100 percent Crown ownership is there's a little bit of a contradiction between those two points you see.The point that actually the Crown is commercial is a long bow—it's a long bow to draw. So prudent commercial basis when the Crown has a 100 percent stake is where there is an issue and I think the select committee needs to work through that and ensure that we have confidence that those safeguards that have been highlighted by the other side of the House actually in reality will result in ensuring that that impartiality is maintained in terms of clear separation between the investment vehicle which is a New Zealand Superannuation Fund and the management and the board that actually executes the strategic direction of the company in which the Superannuation Fund will hold a controlling interest. I think the other aspect which is interesting is if you look at significant sovereign wealth funds globally it is right that many of those globally have the ability to take controlling interests within investments. The legislation that surrounds a number of those sovereign wealth funds is different and I think part of the job of the select committee is going to be undertaking a bit of a scan globally and internationally in terms of the safeguards around the same type of funds in other jurisdictions to ensure that we've got the right I guess riverbanks in place to avoid the boat getting grounded. But that is important because having the right controls in place there is going to mitigate a lot of the risk. The point around what you're seeing with these sovereign wealth funds is quite a significant flow in terms of the ratio of investments that are under active investment. So that's basically those that have fund managers that are making more active day-to-day decision-making in terms of those investments versus those that are passive. And you're seeing very much a flow from active to passive. So while this aspect is looking more at the active side of that there is a bit of an element and it's probably not drawing too far out of piece to say that actually there is a potential for a little bit of distraction within the Superannuation Fund—that shiny investment that shiny business over there; let's get involved and let's invest in that and let's chase that car for a while when actually the reality of this sovereign wealth fund is it is a long-term passive fund and it takes a minimum of a 30-year investment horizon. So we don't want the fund to get distracted by the shiny car driving past and chase that because we know already as was highlighted when the Superannuation Fund came to the select committee that they paid out about $16.2 million of performance bonuses last year when the fund dropped in value by 7 percent. Don't get me wrong performance bonuses for high performance are appropriate in a commercial environment but when you pay every single one of your staff members—100 percent of the staff got a bonus for performance when the fund went backwards by 7 percent and it actually went from $16.2 million and the prior year was $9.4 million and the average between the last four years was $26.4 million and $9.4 million. It went from $9.4 million to $16 million in one year and the CEO got a 40 percent pay rise in 12 months. Maybe I'm the only one that's thinking "Well we just need to be a little bit cautious in terms of giving these guys a little bit more rope." because what that indicates to me is when you give them rope they are quite willing to use that in a way in which it derives benefits. So I think that's just a little bit of context that adds to that conversation. The other aspect in the time that we've got—gee there's not much time to go Mr Speaker. Maybe we have a little bit longer but maybe we're not going back to the second reading today. The other aspect that we want to—I think it was raised by the Hon Michael Woodhouse who raised a good point. It was in terms of having a look at this in the context of ACC—because ACC of course is our other investment fund with a long-term investment horizon. And I would expect that the select committee will also look at other similar legislations. That will be the Crown Entities Act 2004 section 100 for those that are reading the legislation at home while they're watching the speech. But let's see where the select committee goes. And as I say we'll be cautiously supporting this legislation."