NZ Super CIO mulls over potential CEO role
It may not rival the drama of the TV series Succession, but NZ Super's succession planning carries a degree of soul searching for the man seen as the main contender for the chief executive's job, which is being vacated later this year by Matt Whineray.
It’s a fair assumption, given the precedents, that CIO Stephen Gilmore may end up as the new CEO of NZ Super. He’s the frontrunner to take over the role — he’s just not sure if he wants it.
Asked if he will be putting himself forward, he told AsianInvestor, “I don’t really have a good answer to that, because I like what I do and the CEO role is different.
“The challenge for a CIO is letting go of the investment side. I like solving the investment puzzle. I like looking at the economics, the politics, the markets and working out what to do. So I need to work out if I’m willing to let that go.”
Matt Whineray stepped up to the CEO role five years ago, having first been the CIO. He has been with The Guardians of New Zealand Superannuation since 2008, but for family and professional reasons, has decided it’s time for a change.
In a further statement yesterday, Whineray said, “it’s time for me to take some time out while I consider what’s next.”
Whineray made the adjustment to CEO, and others have done the same, but not without some real soul searching beforehand. Following a similar trajectory is Raphael Arndt, the former CIO of Australia’s Future Fund, who is now its CEO.
“Raph and I worked together at the Future Fund,” said Gilmore, who said the switch for Arndt was equally a dilemma because he loves the investment side: “It’s hard to let go.”
Like the Future Fund, NZ Super has been doing its own thinking on the so-called new investment order, looking at possible structural or cyclical shifts that might affect its investment strategy.
“For us, the question is, with all that’s going on, should it change how we invest?” said Gilmore.
“Our returns really come from harvesting the equity risk premium. We’ve taken a lot of exposure to growth and we have the advantage of having sovereign wealth status, which gives us access. We also have strengths with respect to governance and in terms of operational independence.”
Given that, it is no surprise perhaps that NZ Super is the top-rated sovereign wealth fund globally, according to Global SWF. Its long-term investment returns overshadow all other rivals — and by a wide margin in many cases. The fund has also won AsianInvestor’s top institutional award more than once.
This is despite the fact that, unlike most of its peers, NZ Super is a taxpayer.
“It could be that we are actually paying more back to the government than we are getting in contributions. If you look back, we’ve had contributions, less tax, of around NZ$14 billion ($8.75 billion), and the fund size is NZ$62 billion,” said Gilmore.
Having the ability to be long-term and absolute return in outlook has been a benefit, there’s no doubt.
“Historically, we have ridden things through, accepted the volatility, and we expect to get rewarded for it,” he added.
HEDGE FUND ALLOCATIONS
In March, NZ Super brought on a new global investment manager, Episteme Capital, investing $100 million in its global macro programme and employing a mix of fundamental, technical, and liquidity strategies in liquid futures and FX forward markets.
This hedge fund strategy fits into the fund’s global macro opportunity alongside incumbent managers Bridgewater and Citadel.
“We expect global macro strategies to be market-neutral, producing uncorrelated returns over the course of market cycles,” said Whineray.
NZ Super has also made $150 million in new commitments to existing manager Columbia Capital’s private equity funds, which invest in communications and technology with a focus on building and developing businesses in the digital infrastructure, enterprise technology, and mobility space.
"There are opportunities for us, given that we are going through a tightening period, and given that there’s a wedge between public market pricing and private market pricing," said Gilmore.
"And we don’t have the same sort of legacy investments that some other funds have. For a long time, we had a fairly small exposure to real estate and infrastructure. We don’t have a lot of exposure to offices, for instance, and our exposures to infrastructure are quite specific."
Sustainability is integral to every investment decision, and although NZ Super has invested successfully in renewables and offshore wind, it struggles, along with others, in effecting change within the fossil fuel industry.
When it comes to working with big oil, Gilmore observes how other institutions also struggle with the engagement side of things. “It’s the challenge that comes with defending a position [like being a big oil shareholder] and trying to make a case for working with these people. It’s hard for us to do it.”
However, Gilmore believes that as its active equity holdings become more concentrated, that process might also become easier.