Willis NicolaNICOLA WILLIS (National): National is offering our cautious support for this bill to progress to select committee. I want to acknowledge the letter we received from the Minister of Finance in November under section 73 of the 2001 Act. He fulfilled his duty to consult with us before proposing amendments to the Superannuation Act. I want to just talk in these remarks about the history of the Superannuation Fund and the changes that have occurred during the time it has been in place and to highlight some of the risks we can see with this approach that we think it's very important that the select committee examine carefully. I think the first thing to say is that we acknowledge the desire from many to see deeper domestic capital markets in New Zealand and we acknowledge also the need to see investment in strategic infrastructure through those capital markets. Those are both things that we support and that we think are good. We also acknowledge that the New Zealand Superannuation Fund has matured and grown a lot since its inception in 2001 and so it is logical that there will from time to time be the need to modernise the legislative framework in which it operates—particularly to ensure it is up to international best practice. And it's clear when we look across the world that direct investment into entities has become a much more common feature of best practice portfolio management whether that be by sovereign wealth funds or other such funds. That has been a clear change that has occurred over the past 20 years. National starts from the position that we want to see the Superannuation Fund delivering good returns to New Zealanders and to be performing well. However what we don't want to see is the Superannuation Fund potentially crowding out other investors in this market and we're particularly conscious that the New Zealand market is a small one and that the Superannuation Fund is relatively large within that context. So it's our view that the select committee should be looking at not only what is best practice overseas but what potential implications those practices would have in the smaller domestic context of New Zealand and that is something worthy of examination and expert input. So we will be carefully listening to those who submit to the select committee and I will be encouraging a broad range of people to share their views. So as I said I want to talk a little bit about the history because if we go back to the original restriction on the New Zealand Superannuation Fund from holding a controlling interest in entities that was there right from the beginning in 2001 and actually it was quite an important feature of the Act and of the creation of the fund. That was because the Superannuation Fund was conceived of as a portfolio of financial investments and not actually a direct operator of businesses which are two quite different functions. It has been in the past as I said normal practice for private investment funds to avoid controlling interests. There were good reasons for why the Crown would want to restrict that particularly because there could be an implied guarantee by the Crown of the entities' liabilities in the case of financial difficulty. To put it plainly there is a risk that if there's a situation where the Superannuation Fund chooses not to support a company that it has invested in that's now failing due to commercial reasons: if it's the company that's not doing well but the Superannuation Fund has that majority stake—but potentially that involves people losing their jobs; bad implications that none of us want to see—then the Government and the Superannuation Fund itself face significant political pressure to do a bail out. That creates risks for the way those investments are both selected and managed.I do want to acknowledge that we've had evolution in this space already. In 2015 the then National Government passed the New Zealand Superannuation and Retirement Income Amendment Bill and that allowed the New Zealand Superannuation Fund to hold a controlling interest in entities formed for the purpose of holding facilitating or managing the investments of the fund—so fund investment vehicles. And there was an exception to the restriction that the New Zealand Superannuation Fund does not hold controlling interests in entities. So there is some precedent here although of course this bill takes it a step further. When the Superannuation Fund brought this to the attention of the Minister—and I understand it was there in black and white in their briefing to the Minister in 2020—they felt that this constraint meant that they had limits on their potential investment opportunities particularly in markets like New Zealand where investments tend to be smaller scale and they felt that the constraint was unnecessary. I'd note that in response to that claim from the Superannuation Fund Treasury undertook a review of the restriction and as I've noted in my earlier remarks they shared the view that direct investment has become a much more common feature of best practice portfolio management internationally. However there are still a couple of things we need to really watch for here. The first is when we repeal section 59 of the Act we do open up the potential for political pressure on the Superannuation Fund about the kinds of investments that it makes. Now officials have made that warning clearly: they've said that they are concerned that removing the restriction on the Superannuation Fund from acquiring a controlling interest might lead to a crossover with ministerial interests and that creates a risk of lobbying from other portfolio ministers. If I can just spell this out in black and white: imagine a scenario where Michael Wood really wants to get light rail across the line—there really isn't the money in New Zealand to fund it and it doesn't fit within transport priorities for the Crown—and he decides that the way to make that happen is to put pressure on the New Zealand Superannuation Fund to instead make that investment where the Minister of Finance chooses; he won't make it directly. Now those are the sorts of issues we as a select committee must confront because I know it will be tempting for members opposite to say and think Well nothing like that would ever happen. No no it won't happen" but it is our job to foresee things that may happen in the future and to ensure there are appropriate guards against it. So that is an issue that we National members on the select committee will be exploring in some detail because we think the risk of New Zealanders' retirement savings fund being used for political purposes for pet projects is one that we can't tolerate. So we need to guard against that risk. The second issue that we think is very important for the select committee to look at in some detail is that issue of bailout expectations: ensuring that the Superannuation Fund is in some way controlled off from the expectation that the Crown will be bailing out companies where in a normal commercial transaction that wouldn't occur. The third risk that I'd highlight is the issue of reputational risk to the Crown and this is something that officials have seized on where they've said there is potential that where the Superannuation Fund is gaining controlling interests in an entity then from an offshore perspective—or even actually from the perspective of New Zealanders—that is seen then as a Government company and therefore all of its actions reflect on the frameworks of the Crown; reflect on what the Crown thinks is good bad or indifferent. I note that Treasury say there are some ways that that could be mitigated but I think we need to explore that at the committee because the separation between the Superannuation Fund and the Government is important and we are very conscious of the need to protect that separation. Finally I would say that National's attitude to this bill is an example of our desire to be constructive about the way financial frameworks are formed in New Zealand. We want to see the Superannuation Fund performing well. We do think that there is a case for deepening capital markets we do think that there is potential that the Superannuation Fund could both create value for New Zealanders and create value for the fund through these sorts of controlling interests. However as I've said we must proceed with caution and we will be taking our roles on the select committee very seriously. This bill is a big change and we need to scrutinise it appropriately."