Global consulting firm Willis Towers Watson is to review the $4.2 billion Government Superannuation Fund (GSF), reprising a role it filled for the country’s largest sovereign wealth fund in 2019.
In a release last week, NZ Treasury confirmed WTW would carry out the five-yearly GSF statutory review with a final report due in mid-May.
WTW performed the same task for the NZ Superannuation Fund (NZS) two years ago, although to a much wider brief than for the smaller, narrower-targeted GSF.
The GSF review would “examine how efficiently and effectively”, the fund – designed to take the edge of public sector pension costs – is meeting legally defined targets.
Before selecting WTW to conduct the GSF investigation “Treasury conducted a thorough evaluation process which considered a number of high-quality proposals”, the government statement says.
And in a quirk of fate, the WTW consultant leading the GSF review, Tim Mitchell, has been stranded in Wellington for over a year after returning for a brief holiday in the middle of March last year.
Mitchell, WTW global head of governance consulting, was the first employee of the nascent NZS in 2002 under foundation chief Paul Costello, remaining with the now almost $56 billion fund until 2015 before embarking on a consulting career that saw him bounce between London, NZ, and Australia in the following five years.
In 2019 he took up his current WTW position, based in Melbourne.
Mitchell said the GSF review, already underway with a team of five on the case, would be “relatively straight-forward” compared to the previous NZS process.
He said the main focus would be on the GSF governance arrangements, responsible investment framework and performance.
“We will look to add value and constructive comments on what we see and what we think is appropriate for an organisation of the size and cost structure of the GSF,” Mitchell said.
WTW delivered a 76-page report on the NZS in September 2019 including five core ‘recommendations’ and 13 ‘suggestions’.
The GSF version probably won’t be quite as long but Mitchell said the review would look at details such as the fund’s approach to managing climate change.
“Climate change should be on top of everyone’s agenda,” he said. “It’s a very fast-moving topic among asset owners and investment managers globally.”
But the WTW ambit would also take in more traditional investment performance metrics.
“We’re not there to judge investment performance per se,” Mitchell said, with factors such as SIPO compliance, for example, to the fore.
WTW would, however, refer to a previous independent investment report, commissioned by the GFS board late in 2020 in the wake of a sub-par two-year performance. The independent investment report has yet to be made public.
The most-recent GFS annual report notes the fund underperformed its reference portfolio by 1 per cent over the previous 10 years.
Since inception around 2001 to the end of last June, the GSF portfolio – managed by Annuitas – returned 6.7 per cent – or 0.5 per cent under the reference portfolio.
“The Board believes its investment strategy remains appropriate. Nevertheless, given recent performance of the Fund and in the light of heightened economic uncertainty and recent market turbulence, the Board has commissioned an independent review of its investment strategy,” the GSF report says. “This review will also provide information for the Government’s five yearly statutory review of the Fund in 2021.”
Mitchell said while the independent report would feed into the WTW analysis it would not simply “focus on the numbers”.
“We will look to see if there are good structural reasons for investment decisions,” he said. “We’ll be asking what the numbers tell us, if anything, about that.”
According to the just-published 2020 GSF actuarial valuation, the now-closed public servant retirement scheme holds obligations to almost 47,000 pensioners with about 2,600 contributing members.
The government typically chucks in about $700 million each year to meet GSF current pension costs with the $4.2 billion fund (down from about $4.5 billion last year) intended to ease longer-term fiscal costs. According to the actuarial report (supplied by WTW), the GSF unfunded liability ranges between $6.7 billion to over $9 billion based on respective discount rates of 6 per cent and 4 per cent: at the statutory 5 per cent discount rate, the unfunded fiscal pension liability sits at $7.8 billion.
Mitchell said the WTW report would likely go public in the middle of this year after first “socialising” the findings with Treasury and GSF.
And despite the prospect of the NZ border with Australia opening up this year, he said his Wellington move might prove permanent.
“I’ve enjoyed being back in Wellington,” Mitchell said. “As a business we’ve discovered that remote-working is mostly ok – that’s been an eye-opener for consulting firms across the world.”