We have four "endowments" or competitive advantages - core features of the Fund that are derived from how we were established and which help guide us in our investing decisions. The four endowments are:
- Long Fund horizon - we have the ability to invest in illiquid assets and to ride out short-term market movements
- Known liquidity profile - we have a public funding formula that determines our cash flow
- Operational independence - Fund investments are made on a purely commercial basis
- Sovereign status - this allows us to pay lower tax in some jurisdictions and is often favourably regarded by business partners.
In combination, these "endowments", which stem from the way the Fund has been set up, optimise the Guardians' ability to generate superior investment returns for the Fund. These endowments are explained in more detail below.
Due to the long-term growth-oriented risk-return profile of the Fund, the Guardians are confident of adding many billions of dollars (in present day terms) to Government (and national) savings over coming decades. These are investment returns over and above the alternative Government saving option of reducing Government debt.
This expectation is based on economic logic, long-term historical investment performances, and our modelling of likely future outcomes. This research is supported by global expert opinion and the global investment practice of the vast majority of long-term endowment and pension funds.
Our Endowments Explored
Long Fund horizon
We aim to take advantage of the Fund's long-term horizon, certain cash flow (thanks to our public funding formula) and limited need for liquidity, to invest in growth assets such as listed company equities in New Zealand and globally. In the short term, growth assets can be volatile, moving up and down in price. However, because of its long investing horizon, the Fund has the ability to ride out and potentially benefit from these short term movements. Find out more about the advantages of being a long-term investor here.
Certain liquidity profile
The timing of the flow of cash into and out of the Fund is transparent and clear (it is governed by a public funding formula). This provides us with relative certainty and therefore the confidence to invest in assets where other investors may be more constrained by their own liquidity demands. We can buy assets when other market participants are constrained or have been forced to sell to meet their own liquidity demands.
The Guardians has operational independence from the Government. Under our enabling legislation, Fund investments are made on a purely commercial basis. The Government may only direct the Guardians about its expectations of the Fund's overall risk and return. This investment independence gives the Guardians confidence to enter into investment arrangements that best suit the Fund's long-term purpose, with minimum agency risk.
As a pool of financial assets wholly owned by the New Zealand Government, the Fund has sovereign tax status. Some foreign countries have a favourable approach to taxing sovereign entities and this status is therefore positive for the Fund’s returns. Sovereign status can also be regarded favourably by other parties that participate in investment transactions, and positions the Fund well as a potential co-investor of choice within New Zealand.