Illiquid assets

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GLOBAL INVESTOR 1.15 — 26 Liquidity issues in an institutional portfolio context Attractively consistent Patient, yet opportunistic. Those are two key characteristics of the New Zealand Superannuation Fund, whose very long-term investment horizon allows it to pursue contrarian and illiquid strategies if the price is right, all while managing liquidity at the whole-fund level. INTERVIEW BY OLIVER ADLER Head of Economic Research JOSÉ ANTONIO BLANCO Head Global MACS Oliver Adler: From the point of view of a private client, what’s special about the New Zealand Superannuation Fund (NZ Super Fund), as a national sovereign wealth vehicle? Adrian Orr: We are a “buffer” fund. Our aim is to smooth the increasing financial burdens for future generations. For that reason, we have a very long-term investment horizon: no money will come out of the fund until at least 2031. That provides us great certainty around our investment horizon and our liquidity needs. These “endowments,” as we call them, together with our governance and our ownership (i.e. our control over our capital) allow us a very high level of risk appetite and also the ability to invest in what can be called illiquid assets. Oliver Adler: How do you decide your investment strategies? Adrian Orr: We have a number of investment beliefs against which we continuously test ourselves, for example, that there is some concept of fair value for an asset, and that prices may deviate from fair value, but should also revert to it over time. These beliefs give us the confidence to pursue contrarian strategies, as well as illiquid strategies, if we think the price is right. All potential investments, regardless of asset class, are measured in terms of their attractiveness – either as a diversifier, or as a (mispriced) opportunity – and, more generally, their consistency with our beliefs. Oliver Adler: Isn’t that what the vast majority of funds do? Adrian Orr: Most funds have specific strategic asset allocations (SAAs) to which they are always rebalancing, whereas we are opportunistic: we are continuously shifting from the least attractive to the most attractive asset classes or assets, based on our confidence in our strategies. We are least invested in black-box hedge-fund-type strategies that are purely skill-based. We have low confidence in skill as a basis for adding investment value because we really struggle to be able to assess it, and we also have low confidence in its consistency. José Antonio Blanco: What kind of horizon do you use to estimate the attractiveness of an asset mispricing? How much do you want to have in illiquid assets? And how much in liquid ones? Adrian Orr: We define a long-term investor as someone who has command over the capital. So at any point in time, we >
GLOBAL INVESTOR 1.15 — 27 Photos: Jamie Bowering Adrian Orr is CEO of the New Zealand Superannuation Fund, which has posted annualized returns between 17% and 25% over the last five years.
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Illiquid assets

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