Weekend Reading

Ashby Monk

If you read one thing this weekend, make it this new report by the New Zealand Superannuation Fund. Entitled “How We Invest”, it describes in remarkable detail, as you might guess, how the NZSF invests its assets. If you’re at all interested in the internal operations of sovereign funds — as I am — this is ‘favorite-chair-with-a-bowl-of-popcorn-material’. It isn’t often you get such a transparent look at the internal operations and management of a SWF.

For example, ‘How We Invest’ details how the NZSF: tries to generate alpha (beat the markets); when and how it uses derivatives; how ESG is incorporated into operations and investments; when the fund chooses to invest its assets in-house; and what it looks for in its third-party asset managers.

The report even has a glossary of financial and investment terms for the uninitiated, which I think is really useful. For example, how many of the financial newbies among you can accurately define all of the following terms: access point, gate, hurdle, sharpe ratio, synthetic, or tilt? Yeah, I thought so. Finance is a language, and it’s particularly impenetrable when you’re not fluent.

Anyway, I’ve got to give kudos to the NZSF communications team. Think of it: how cool would it be if all sovereign funds (and public pensions for that matter) published reports detailing exactly how they make their investment decisions? Then again, is the NZSF losing a bit of it’s edge by sharing too much of it’s ‘secret sauce’? Discuss.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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