Willis NicolaNEW ZEALAND SUPERANNUATION AND RETIREMENT INCOME (CONTROLLING INTERESTS) AMENDMENT BILLSecond ReadingHon NICOLA WILLIS (Minister of Finance): I move That the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill be now read a second time. SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon NICOLA WILLIS: This bill amends the New Zealand Superannuation and Retirement Income Act 2001. It was introduced last year to Parliament by the previous Minister of Finance the Hon Grant Robertson and at that time when I rose to speak I was cautious in my support for it and urged that it go through a full select committee process. The bill has now gone through that process and today the Government is in a position to support its passage through this House.The bill repeals and replaces the current sections 59 to 59B of the Act which currently stop the New Zealand Superannuation Fund from taking a controlling stake in entities. That was a key provision of this Act when it was enacted and it reflected the then early stage of the fund and the fact that it wasn't mature along the investment cycle. It is now in a very different place. The Superannuation Fund has now got extensive investments both here in New Zealand and internationally and is far more mature in terms of both its size its scale and its capability. It is in line with that that it is now appropriate that the fund will from time to time consider more complex asset classes for investment and will take a lead investor role. These amendments in the Act remove a restriction that will now allow the New Zealand Superannuation Fund to take a controlling stake in entities in the future and I think it's obvious to members of the House that that opens a lot more possibilities for the kinds of investments that the super fund can make. I would say particularly here at home there has been much discussion about the fact that we have significant infrastructure needs in this country that funding and financing those infrastructure needs will not all be met directly from the Crown because not all of those assets need sit directly on the core Crown balance sheet. It is likely that an entity like the New Zealand Superannuation Fund would in future choose to invest in a controlling entity in these sorts of assets and many other sorts of assets where it believes it can get a good return consistent with the investment principles.This bill does balance out I think the concerns that many in this House will have had that by opening up this potential there could be politicisation of the way in which the fund invests. So the bill also adds a requirement that the Guardians' statement of investment policy standards and procedures must include details of the governance framework for the implementation and operation of controlled entities. At the same time it amends Schedule 1AA of the Act to require that within 10 years as part of the review a review of these amendments be made.It also ensures—and I think this is important—that where there is a controlling investment made by the fund it does not result in that entity then being treated as part of the Crown and therefore subject to the obligations that are intended for public sector organisations. So as I said the select committee considered the importance of the Guardians being able to invest directly in a wide range of investment opportunities in New Zealand but also considered what was required to preserve its independence. The select committee was satisfied that the Guardians will with this amendment be able to seek out further investment opportunities and in particular have more flexibility both when entering a holding and exiting a holding—that is to say that at the moment the Superannuation Fund can be restricted from entering even a partial holding in an entity if it thinks there is a risk that changes to the ownership structure of that entity in future could leave the Superannuation Fund incidentally with a controlling interest from which it is barred from having in law and that is also to say that there may be circumstances in which the Superannuation Fund would be forced to exit an asset even though it was meeting its investment criteria because of this restriction in the law.I think it's important to note that enabling controlling interests in this way is not something unusual. In fact it brings the New Zealand Superannuation Fund in line with many global peers. As I said earlier typically as sovereign wealth funds mature and develop internal expertise develop a wider portfolio of investments more of its capital gets managed in-house rather than through secondary funds.Similarly we have seen here that the New Zealand Superannuation Fund in the past 20 years has grown that in-house expertise by developing internal procedures and processes to manage direct investments and it believes it has reached a point where it is capable of taking this lead investor role with the ability to take a controlling interest in businesses.So when we come to this question of the Guardians' independence I'd note that the select committee commented that the proposed amendments aim to supplement existing protections in the Act to ensure independence from public or ministerial pressure. I agree with the select committee's finding in that regard. The bill in no way weakens or alters the Guardians' independence from political influence in relation to investment decisions which is provided for in section 64(2) of the Act and to ensure appropriate oversight the bill requires the board of the Guardians to include in the statement of investment policy standards and procedures the details of their governance framework for the implementation and operation of controlled entities. I think this provision provides an extra level of transparency and assurance about the circumstances and ways in which the fund would make such investments.I'd note that the select committee commented that the 2019 statutory independent review of the Guardians done by Willis Towers Watson was positive and commented favourably on the Guardians' governance model and its approach to considering domestic assets for investment. This I think should give the House confidence that this is in fact a mature entity that has the processes and systems in place to ensure it makes good investment decisions into the future.The select committee noted that by allowing the Guardians to take a controlling interest in more active operating companies it will actually widen the portfolio that it can invest in. This could actually be particularly important in a counter-cyclical way which is to say that at times if the economy is in difficulty having a long-term enduring investor able to invest in stakes in businesses at that time could be beneficial to the fund. The select committee also commented that the proposed inclusion of requirements for the governance of controlled entities in the Guardians' own primary investment documents should operate flexibly but also be a binding set of rules to help mitigate the risks of taking controlling interests.I believe that ultimately removing the control restriction will enable the New Zealand Superannuation Fund to access a wider group of viable investment partners and opportunities that this could in the long run lead to better investments on behalf of New Zealanders and investments that can withstand short-term fluctuations in valuation.Finally I would say that all of this is consistent with something that is very important and that we should not ever I believe step away from in this House which is that the Guardians' mandate is to invest the Superannuation Fund on a prudent commercial basis because actually the purpose of the fund is to ensure maximum returns over the long run to support the payment of New Zealand's superannuation into the future. We do not step away from that principle but making these amendments today we will allow the Guardians to manage the fund in a manner consistent with best-practice portfolio management.So in closing the passage of this bill will promote operational efficiencies and will help ensure the New Zealand Superannuation Fund's assets are being managed in the best way possible. Given actually how big the New Zealand Superannuation Fund is on the Crown balance sheet these changes do actually have potential for material gains I believe for our economy. So I thank the select committee for its consideration of the bill and I commend the committee's report to the House. SPEAKER: The question is that the motion be agreed to.