Parliament has cleared the way for the NZ Superannuation Fund (NZS) to take outright ownership of companies after a committee rubber-stamped the enabling legislation.
In a final report on the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill published last week, the Finance and Expenditure Committee (FEC) approved the proposed law as is.
The legislation “would give the Guardians more flexibility when entering and exiting a holding, providing additional capital to investee entities, or influencing board and shareholder decisions on, for instance, ESG matters (environmental, social, and corporate governance)”, the FEC report says. “Removing the restriction would also enable the Guardians to use simpler ownership structures, and take fuller advantage of investment opportunities.”
However, the committee noted some concerns raised in the seven submissions (four in favour, two against and one neutral), including the heightened risk of political interference in NZS investment decisions and potential pressure on the fund to “bail out distressed New Zealand companies”.
Despite the possible pitfalls, the FEC report says the $65 billion sovereign wealth fund already has robust governance to “mitigate the risks of taking controlling interests” while a five-yearly review clause in the bill provided further assurance.
Under the current governing legislation, the NZS is barred from taking effective stand-alone control of operating companies, although it has always been able to own some real assets such as rural land and property outright. A 2015 amendment opened the door for the NZS to hold controlling interests in ‘fund investment vehicles’ that extended its ownership powers somewhat.
But the FEC report notes that the draft legislation goes a step further in freeing up the fund to exert control over “active operating companies… and would therefore represent a meaningful change to what the Guardians could do”.
“… we are persuaded that the bill could yield real benefits for both the NZSF and the New Zealand economy,” the report says.
The bill – sitting in line for a second reading at 25th on the order of business – is unlikely to pass through parliament before the October 2 general election.
At the same time last week, the FEC delivered a blockbuster 112-page cryptocurrency report, ending a more than two-year inquiry into the subject.
Among 22 recommendations, the FEC inquiry – chaired by Labour MP Ingrid Leary – calls for the government to “direct” the Ministry of Business, Innovation and Employment (MBIE) to ease crypto under the financial advice legal umbrella via a novel regulatory move.
The report says government should push MBIE “in consultation with the FMA and the industry, to use its regulation-making powers to add a defined class of digital assets which are used for investment purposes as a new category of ‘financial advice product’ (but not, to be clear, a new ‘financial product’) to bring them into the regulated financial advice and client money–client property services regimes”.
Essentially, the FEC outsourced the findings to the inquiry’s independent legal advisers Jeremy Muir, MinterEllisonRuddWatts partner, and Alexandra Sims, University of Auckland associate professor in commercial law.
The recommendations largely follow the 22 proposals fleshed out in the Muir-Sims report that is included with and represents the bulk of the FEC publication.
In general, the FEC calls for the government to adopt a more “proactive” stance on crypto, or “digital assets” as per the preferred rebrand for the nascent industry.
“The digital assets and related technologies industry is at a formative stage. We believe it has an exciting future,” the report says. “… There is significant opportunity for innovation in financial services, which can have application not only in commercial contexts but also social and environmental ones. However, there are also risks to be borne in mind, particularly around consumer protection.”
Meanwhile, in a quirk of timing, poster token for the crypto industry, bitcoin, entered another period of volatility just as the FEC tabled its report. Bitcoin slumped almost 10 per cent during the day with the wider crypto market following it down.