Bayly Andrew: New Zealand Superannuation and Retirement Income Amendment Bill — Second ReadingText is incorporated into the Bound VolumeBayly Andrew: New Zealand Superannuation and Retirement Income Amendment Bill — Second Reading[Sitting date: 07 May 2015. Volume:705;Page:3330. Text is incorporated into the Bound Volume.]ANDREW BAYLY (National—Hunua):Thank you.The ASSISTANT SPEAKER (Lindsay Tisch): You call out “Mr Speaker”.ANDREW BAYLY: Yes I thought the way you were looking at me Mr Assistant Speaker.It is a pleasure to be talking on the New Zealand Superannuation and Retirement Income Amendment Bill. It is great to hear members of the Opposition supporting this bill because it is actually a good piece of legislation. Just to put it in context nearly all New Zealanders will have worked and paid taxes over their working lifetime with the prospect of having a prosperous and healthy retirement. Retirement plans are often individual but in terms of the role of Government there is a principal concern to ensure that every citizen has the comfort of knowing that they will have some income provided to them by the Government in the form of the New Zealand Superannuation Fund. That is why we as a Government have an obligation to our superannuitants to ensure that the funds are managed efficiently effectively and in a way that is prudent over the long term.We are focused on ensuring that the Government’s own finances are appropriate across all the sectors that we manage because not only does that help in terms of building a robust economy but also it means that there is going to be further money in the future to be able to meet our future commitments to superannuitants. Of course the end result of all of that is that we have got a determination that will see more jobs better incomes improved standards of living and a continuation of the excellent public services that we all need and require.The purpose of this bill is that it addresses the financial security of the older members of our community. The Superannuation Fund invests money effectively on behalf of all New Zealanders to meet the future requirements of superannuation. By doing so in a good manner it obviously creates wealth for the Crown’s own accounts it improves the ability of the Government to fund New Zealand superannuation and thirdly it reduces the tax burden on future New Zealanders when we get to the stage where high superannuation payments are going to be required. New Zealand superannuation is in effect a form of savings for today’s taxpayers who ultimately will become the future’s superannuitants.In terms of the performance of the New Zealand Superannuation Fund it has been exceptional. It started in 2003 with a cash injection of $2.5 billion. It has now grown to just on $29 billion and has achieved a staggering return over that period of on average just over 10 percent—10.2 percent annually. When you compare this with the fund’s long-term objective which was to beat Treasury’s bill rate by 2.5 percent over a rolling 20-year period this has been an outstanding return.At $29 billion the New Zealand Superannuation Fund actually represents close on 40 percent of all the funds under management held by the Government. It is a huge part of that industry a huge part of the Government holding at 40 percent. ACC is obviously the next-largest component of all that. There are two other funds that contribute to that. But it is a huge part of the total assets that the Government has. And of course although we are continuing to invest in infrastructure such as schools and roading and projects like that the value of those assets is not significantly increasing. The importance of the funds management industry and particularly the part that New Zealand superannuation plays in that is that it is always going to be a growing asset class for this Government in terms of the future net assets for the Crown accounts.This robust result that the New Zealand Superannuation Fund has achieved is due principally to the Guardians of New Zealand Superannuation currently chaired by Gavin Walker and of course the management and leadership team led by Adrian Orr at the New Zealand Superannuation Fund. They have achieved a sterling result. Given the size of the fund—just on $29 billion as I said—it has been absolutely necessary to have a diversification in terms of not only asset class but also the geographical mix of investments.It is interesting to note that at 31 March 2015 in terms of the asset class breakdown just on 60 percent was invested in global equities—i.e. a range of international equity markets around the world—12 percent was in fixed interest - type investments which are things such as bonds Treasury stocks and all those sorts of things often with a geographical separation as well; 5 percent was in property; and 4 percent was in forestry.It is interesting. One of the things that has been fascinating to watch with the evolution of the New Zealand Superannuation Fund is the different types of investments it is prepared to undertake. In terms of forestry and the investment that the New Zealand Superannuation Fund made alongside other partners in the Central North Island Forestry Partnership here we see it taking strategic roles. In terms of geographical diversification nearly 40 percent is actually invested in North America. The next highest is 25 percent in Europe. Interesting is that third on the list is actually New Zealand at 15 percent followed by 9 percent in Australia.You might ask yourself why only 15 percent is invested in New Zealand. The reality is that with a fund size of $29 billion it would swamp the New Zealand equity market and the bond markets. That is why the fund is almost absolutely obligated to diversify both in asset class but also which is probably more important in geographical terms.It is interesting the types of investments that the fund has made in New Zealand. They are in many of the top companies and primarily in the listed market area. Not only is this fund recognised as one of the best-structured sovereign wealth funds in the world but also it was named the most innovative sovereign wealth fund by CIO magazine in 2012.Just turning to the purposes of this bill the primary purpose is to facilitate the efficient and effective investment of the New Zealand Superannuation Fund by allowing the guardians who are the managers and administrators of the fund to control entities formed for the purpose of holding facilitating and managing its investments—commonly referred to as fund investment vehicles. Another way of describing those effectively is holding companies for a range of investments that funds take in. The New Zealand Superannuation Fund is not unusual in terms of using these vehicles. These fund investment vehicles can be used as investing entities—i.e. such as a holding company for taking equity stakes in a range of investments as well as other investment funds. They can be used for investing in internally or externally managed funds again with the view around equity stakes or debt and investing equities for real estate.When you look at New Zealand’s investments that the fund has made as I said before a lot of them have been in the major stocks but the biggest holding we have got is actually 20 percent in Z Energy. This is where the New Zealand Superannuation Fund took a very strategic view and invested alongside other partners in that venture as a private company listed that entity and made a substantial amount of money on that investment. But in terms of controlling interest that is the highest one that we have at 20 percent. Typically the fund invests less than 20 percent in a range of investee companies around the world.Allowing the guardians to control funding investment vehicles will permit them to structure and access investments more efficiently and will also protect them from liability. It should be recognised that the guardians are actually a Crown entity. At the moment the legislation prevents the guardians from having control of an entity which at the time of the establishment of the New Zealand Superannuation Fund was a good idea but with migration and the scale of New Zealand superannuation as it now is it is appropriate that the guardians be given this flexibility concerning official investment strategies structures and access.The key parts that are going to make changes around this bill will enable the guardians to have the ability to grant a power to appoint a power of attorney to appoint an investment manager and to appoint a custodian. Those are very very relevant and appropriate vehicles that all fund managers use. Thank you very much.