This glossary of terms relates to the Guardians' organisation, to the investment strategies, activities, and performance of the Fund specifically, and to investing generally.


Absolute ReturnThe actual return, in dollar or percentage terms, generated by a portfolio during a specific period.
Access pointThe actual investment the Fund makes to gain exposure to a desired risk (e.g. buying a listed equity) or, in the world of active investing, the access point is the way we get exposure to the desired active return stream. Access points are our way of exploiting opportunities, themes, ‘stress test’ outcomes and manager skill. The access point can be passive, active, synthetic or funded, directly (internally) or externally managed.
Active managementWhere a fund’s manager attempts to outperform a market index through various investing strategies and buying/selling decisions. Active managers rely on analytic research, forecasts and their own judgement and experience in making investment decisions. Active investment strategies are more complex and expensive to implement than passive management. See Passive management, below.
Active returnsAny return differential between the actual portfolio and the Reference Portfolio. In the context of an investment, the positive return we hope to earn for taking on active risk. Same as value add.
Active riskAny deviation in risk in the actual portfolio relative to the Reference Portfolio. Active risk is a relative risk concept. The active risk in the portfolio is dominated by activities in our value-adding strategies. Note that the actual portfolio can have the same total or absolute risk as the Reference Portfolio but still have active risk. Technically active risk is expressed as the expected standard deviation of the active returns.
Active strategiesValue-add strategies.
Actual portfolioThe Fund’s portfolio at any point in time reflecting all the positions arising from the Fund’s value-adding strategies as well as drift. Conceptually, the actual portfolio equals the Reference Portfolio (cash plus risk premiums) plus drift plus active risk. See Actual Portfolio.
Added-Value ActivitiesActivities that will add value over and above the returns generated by the Reference Portfolio (passive management).
Arbitrage transactionsThe simultaneous purchase and sale of an asset in order to profit from a difference in the price.
Asset classAn asset class is well-diversified exposure to a group of securities or assets that share common characteristics.
Asset MixThe proportion of assets held in the portfolio in percentage terms.
Basis PointOne-hundredth of one percent. The difference between 5.25 per cent and 5.50 per cent is 25 basis points.
BeliefThe Guardians' stated view on some aspect of financial markets and investing.  A key driver of our investment decision making.  See Beliefs.
BenchmarkA standard against which the performance of a security, index, or investor can be measured. See details of the Fund's returns vs the Reference Portolio and vs Treasury Bills here.
Board of the Guardians of New Zealand Superannuation (Board)A body responsible for governing the Guardians. The Board must consist of at least five, but no more than seven members appointed by the Governor-General on the recommendations of the Minister of Finance (established under the New Zealand Superannuation and Retirement Income Act 2001).
BondA debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.
CapabilityManagement’s ability to execute a value-add strategy. Incorporates depth and breath of experience, risk management abilities, etc.
CapitalA corpus of funds which can be invested to generate economic value.
CashGenerally taken to mean a very short-term investment earning interest from a highly-rated bank or an equivalent bank bill.
CDPCarbon Disclosure Project (
CEMCEM Global Benchmarking (
Central clearingCentral clearing is a process by which financial transactions are cleared by a single (i.e. central) counterparty, instead of being transacted directly between the two parties involved. This new requirement is designed to reduce risk in the global financial system.
CFICrown Financial Institution
CollateralisationCollateralisation is the primary means of managing credit exposure among our counterparties. It represents monies or securities that are posted between us and counterparties
to mirror unrealised profit and loss on our open derivatives positions.
CommoditiesTangible products, such as metals, crude oil or grain.
CompensationReturn for taking on risk. Often, the compensation is the risk premium, or excess return over cash that the investment offers.
Continuous linked settlements (CLS)CLS is a systematically important financial market utility that operates a multicurrency cash settlement system to mitigate settlement risk for the FX transactions of its member banks and their customers. CLS mitigates settlement risk through the provision of payment versus payment settlement service.
ConvictionA measure of the degree of confidence we have in an active manager’s investment skill. The Fund’s approach to rating an active manager. Applicable to both public and private market managers. The conviction rating is a quantitative overall score based on the scores of a number of individual, largely qualitative, factors. See Evaluation.
CounterpartyA counterparty is a term used to describe a legal entity, unincorporated entity or collection of entities to which an exposure to financial risk might exist.
Credit riskThe risk associated with the variability in the perceived credit quality of a fixed income instrument.
Crown entityA Crown entity is an organisation that forms part of New Zealand’s state sector, as established under the Crown Entities Act 2004, a unique umbrella governance and accountability statute. Crown entities are legal entities in their own right. A decision to assign a government activity or function to a Crown entity indicates that the function should be carried out at ‘arm’s-length’ from the Government. The Crown entity’s board directs the entity’s day-to-day operations. A monitoring department is responsible to a portfolio Minister for monitoring Crown entities within that portfolio on the Minister’s behalf. In the Guardians’ case the monitoring department is the New Zealand Treasury and the portfolio Minister is the Minister of Finance. See Double arm’s-length, below.
DerivativeA derivative is a financial instrument which derives its value from the value of underlying entities such as an asset, index, or interest rate - it has no intrinsic value in itself. The derivative itself is merely a contract between two or more parties, the value of which at any one time is determined by fluctuations in value of the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Derivatives can be used to manage risk, reduce cost and enhance returns. See Derivatives.
DirectA direct activity is a financial market transaction undertaken by the Fund’s management.
DiversificationThe potential improvement in a portfolio’s Sharpe Ratio which arises from introducing assets into the portfolio that behave differently to the assets in the Reference Portfolio. Introducing any new asset or asset class into the portfolio will have a diversification benefit. The more diversified a portfolio, the more difficult it is to achieve further diversification gains. Diversification will reduce the portfolios actual risk.
Double arm’s-lengthThe Guardians is an autonomous Crown entity, meaning it is legally separate from the Crown and operates at ‘double arm’s-length’. The first arm of independence is that the Government does not decide the pool of candidates for the Board of the Guardians (candidates are identified by an independent Nominating Committee). The second arm of independence is that investment decisions are made by the Board and Management of the Guardians. See Crown entity above and the diagram for more information.
Economic risk exposuresThe handful of basic economic drivers that determine the risk and return of all securities, investments and asset classes. Generally unavoidable and undiversifiable. These economic drivers are real growth, inflation, agency risks and ‘other’.
EndowmentA characteristic of the Fund that provides the Fund with a natural advantage or edge over the typical investor. See Endowments.
EquilibriumThe long-term or steady state. Generally expressed in the context of long-term average expected risks and returns.
EquitiesMore commonly known as shares or stocks. Securities that signify ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
EscrowMoney held by a third party on behalf of transacting parties.
ESGEnvironmental, Social and Governance.
Excess returnSee Risk premium, below.
Expansion capitalAlso called growth capital, expansion capital is a type of private equity investment, most often a minority investment, in relatively mature companies that are looking for capital to expand without a change of control of the business.
Externally managedAn investment managed by an appointed external manager.
Financial market transactionA public market transaction relating to individual securities, foreign exchange and derivatives.
Fixed incomeAssets providing income to investors via a fixed coupon payment. In the context of the Reference Portfolio, fixed income is a very well diversified set of exposures including sovereign bonds, investment grade credit, agency debt, high-yield bonds and emerging market debt. Inflation-linked securities are also included, though an element of the income is variable because it is linked to future inflation outturns.

Fixed Interest Securities

Assets providing income to investors via a fixed coupon (interest) payment. Examples including sovereign bonds, investment grade credit, agency debt, high yield bonds and emerging market debt.
FMAFinancial Markets Authority (
Foreign exchangeThe Fund’s exposure to non-NZD cash rates. In our Reference Portfolio there is no foreign exchange exposure as all non-NZD denominated assets (i.e. foreign-funded assets) are hedged back to NZD. Hedging back to NZD essentially replaces foreign cash returns with NZD cash returns. Foreign exchange in the Fund’s context refers to a basket of the major foreign currencies.
FSSPForecast Statement of Service Performance.
Fund investment vehicle (FIV)      An entity formed or controlled by the Guardians for the purpose of holding, facilitating, or managing investments in the Fund.
FuturesA financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price.
FXForeign Exchange.
GateA minimum level of integrity or commercial viability that a manger must demonstrate to be even considered as a manager for the Fund. Used explicitly in public markets but implicit in private markets as well. The public market gates are asset capacity, trust, alignment of interest, business viability and conflicts of interest. After passing through the gates a conviction analysis of the manager can be undertaken.
GearGearing is the ratio of debt to equity held by a firm on its balance sheet.
Guardians of New Zealand Superannuation (Guardians or GNZS).An autonomous Crown entity which manages, administers, and invests the New Zealand Superannuation Fund (established under the New Zealand Superannuation and Retirement Income Act 2001).
Growth assetsIn the Reference Portfolio, growth assets comprise equities and REITs. Some private market assets are also growth assets, e.g. private equity.
HedgeMaking an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
HurdleThe minimum expected return required from a proposed investment to compensate the Fund for the inherent risks, fees and other costs (such as taxes) of the investment.
IGCCInvestor Group on Climate Change (
IlliquidityThe inability to buy or sell an investment in a timely manner with minimal transaction costs. Usually inherent in private market investments but can also be evident in public market investments. Illiquidity is a risk and, like all risks, the investor must be compensated for taking the risk on. In the case of illiquidity, the compensation is a higher expected return from an illiquid investment compared to a comparable liquid investment.
Illiquidity PremiaThe enhanced expected premium we wish to receive for investing in illiquid assets. It is the amount we wish to be compensated for investing in illiquid assets.
IndexA measure of performance of a collection of assets typically across a sector, country, region or style (e.g. Dow Jones, MSCI).
Internal Investment
Mandate (IIM)
The policy governing the management of an internal mandate falling under an active strategy.
InvestmentAn allocation of risk capital to a specific manager or activity. Could include an individual investment undertaken by the Fund’s internal management under an Internal Investment Mandate (IIM).
Investment horizonThe period of time over which money is to be invested (e.g. 1 year, 20 years).
IPOInitial Public Offering.
IRRInternal Rate of Return.
IwiMeaning ‘peoples’, iwi is often translated as ‘tribe’. Iwi forms the largest social units within Maori culture.
KohaKoha is a New Zealand Maori custom, which can be translated as gift, present, offering, donation or contribution.
KTKaingaroa Timberlands Partnership.
LongA long or long position is when an entity buys a security, currency or derivative with the view of benefiting from a rising market in the relevant asset.
Market indexAn aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date. Market indices are intended to represent an entire stock market and thus track the market’s changes over time.
Market riskIs the non-diversifiable risk associated with exposure to a broad mix of asset classes. In the context of the Fund, this also refers to the risk in an investment that is correlated with the Reference Portfolio or some investable public market benchmark or asset class.
Mark-to-marketA measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark-to-market aims to provide a realistic appraisal of an institution’s or company’s current financial situation. The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.
Margining rules for non-cleared derivativesThe rules that determine how much margin (cash and securities) investors have to provide upfront when transacting non-cleared derivative transactions.
Mezzanine loanA financial security or a layer of capital that ranks between debt provided by creditors (like banks) and the equity provided by shareholders. Debt claims therefore have first claim on the capital of a business, with the mezzanine loans paid thereafter. These loans are usually convertible to equity under defined circumstances.
NAVNet Asset Value.
Net returnReturns over and above the Treasury Bill return - the Government’s cost of debt.
New Zealand Corporate Governance ForumA Forum comprising the institutional investors committed to promoting good corporate governance in New Zealand companies for the long-term health of the capital market. Visit
New Zealand Superannuation and Retirement Income Act 2001This Act defines current entitlements to New Zealand Superannuation; establishes the New Zealand Superannuation Fund (Fund) with sufficient resources to meet the present and future costs of New Zealand Superannuation; provides for Crown contributions to the Fund; establishes a Crown entity, called the Guardians of New Zealand Superannuation (Guardians), to manage and administer the Fund; establishes a process for signalling political agreement on parameters for New Zealand Superannuation entitlements and fundings; and brings together in one Act all of the provisions for each of those matters.
NZSNew Zealand Superannuation.
NZSFNew Zealand Superannuation Fund (Fund). A Crown-owned fund financed by capital contributions from the Crown, to assist future Governments to meet the cost of providing retirement income to New Zealanders (established under the New Zealand Superannuation and Retirement Income Act 2001).
OpportunityA feature of the investment environment that is conducive to generating positive risk-adjusted active returns. See How we Invest.
OTCA security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase ‘over-the-counter’ (OTC) can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.
Out-performanceExcess performance above the benchmark or above the targeted return.
Overweight and UnderweightThe actual exposure to an individual investment or asset class at a point in time relative to a predetermined policy or benchmark index.
Passive managementPassive management, or ‘index tracking’, is a style of investment management through which a fund’s portfolio mirrors a selected market index and does not attempt to beat the market. Stocks move in and out of the portfolio according to index inclusion rather than through an active investment decision. See Active management, above.
PEPrivate Equity.
PEREPrivate Equity Real Estate.
PhysicalAn investment that is funded with cash to the full notional amount of the investment.
Portfolio completionThe set of market activities that deliver the desired portfolio, including placement of market orders, hedging activity and other Treasury functions.
Portfolio constructionThe allocation of risk in a portfolio. Generally applied to active management, portfolio construction embraces the broad allocation of risk capital to various value-add strategies as well as the specific allocations of risk capital to individual investments.
Pre-fundingSaving now to offset the future cost of New Zealand Superannuation.
Private equityA private equity investment involves investing directly into private (non-listed) companies. The funds raised through private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a company's balance sheet.
Private equity real estateAn asset class consisting of equity and debt investments in property, e.g. a property development. Investments are typically actively managed.
Private marketA market where capital is raised by specific agreement between investors. The terms of each transaction are negotiated separately, and usually remain private and are not disclosed to third parties. Private markets include private equity, real estate, infrastructure, and timber.
Private markets active strategiesPrivate market value-adding strategies.
ProxyA formal document signed by a shareholder to authorise another shareholder, or commonly the company's management, to vote the holder's shares at the annual meeting.
Public market

Public market investments comprise:

  1. exchange listed securities; or
  2. over-the-counter financial contracts linked to listed securities and/or widely-followed indices or benchmarks.

Public market investments are generally (but not always) liquid and generally (but not always) have regular and transparent pricing. We prefer to use the term ‘listed’ rather than ‘public market’, although OTC instruments are, by definition, not listed.

Public market active return strategy (PMAR)Generating active returns through a strategy that focuses on listed securities. An increasingly artificial distinction between the private markets active strategy. This used to be a separate business unit within the Guardians but now comes under the Investments group.
RebalancingThe process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets to maintain your original desired level of asset allocation.
Reference PortfolioA low cost, passively managed and well diversified portfolio of listed asset classes that is consistent with the Fund achieving its return objectives without undue risk, i.e. fit for purpose. Conceptually, the Reference Portfolio comprises a 100% cash position (NZD) plus a set of risk premiums or excess returns that also sum to 100%. It is the portfolio we would have if we invested passively. See Reference Portfolio for an explanation of the concept and Returns vs Reference Portfolio for our performance against it.
REITReal Estate Investment Trust.
ReturnThe return on an investment after manager fees and taxes.
Responsible Investment (RI)Responsible Investment. The integration of environmental, social, and governance considerations into investment management processes and ownership practices. See Responsible Investment for an overview of our approach and Performance - Responsible Investment for an overview of how we benchmark internationally.
RiskThe standard deviation of expected returns. The Fund’s risk model uses equilibrium risk (and return) assumptions.
Risk Allocation Process (RAP)

The process by which risk capital is allocated to the Fund’s opportunities. Under the RAP:

  1. opportunities are assessed for relative attractiveness;
  2. allocation approaches determine the how much risk capital should be allocated for various levels of attractiveness; and
  3. the approaches are scaled to meet risk budgets set for groups of opportunities and for the Fund as a whole. This latter budget is referred to as the total active risk budget and the groups of opportunities as risk budget baskets.
Risk BudgetArticulates the average amount of active risk that is expected to be allocated to an opportunity or group of opportunities referred to as risk budget baskets. Risk budgets aggregate to the total active risk budget. Risk budgeting is a stage of the risk allocation process.
Risk PremiumThe return in excess of cash earned by investors as compensation for taking passive exposure to the market or an asset class. Risk premium and excess return can be used interchangeably.
Risk ToleranceThe amount of loss an organisation is willing or able tolerate should a downside risk materialise.
Santiago PrinciplesA set of principles and practices generally accepted by the member institutions of the International Forum of Sovereign Wealth Funds as amounting to a basic code of good practice for sovereign wealth funds.
Sharpe Ratio (SR)A characterisation of how well the return of an investment compensates the investor for the risk taken. Portfolio total return minus cash divided by total risk. Usually applied at the portfolio level, in which case it is the total portfolio return over cash (which is the sum of excess returns and active returns) divided by total risk. Can also be applied to individual investments and strategies. All of our added-value investment aims to improve the Sharpe Ratio of the Fund.
Short (or Short Position)The selling of a borrowed security, commodity or currency, with the expectation that the asset will fall in value.
SIPSPStatement of Investment Policies, Statements and Procedures.
ShortA short or short position is an investment strategy where an entity sells a security, currency or derivative with the view of buying back the same amount of the relevant at a lower price.
SkillActive investment expertise. The ability to provide active returns.
SMESmall-Medium Enterprise.
SOIStatement of Intent.
Sovereign wealth fundPools of money derived from a country’s reserves, which are set aside for investment purposes that will benefit the country’s economy and citizens.
SPEStatement of Performance Expectations
Strategic Asset Allocation (SAA)The division of assets within an investment portfolio with regards to the long term view of the risk and return profile of those asset classes, and how to best achieve the portfolio's long term objectives. This approach to investing is not used by the New Zealand Superannuation Fund and instead we have adopted the Reference Portfolio and Strategic Tilting approach.
Strategic TiltingTilting is a value adding strategy where the mix of the Fund's market or currency exposures relative to the Reference Oortfolio is changed to increase exposure to undervalued asset classes. See Added Value Activities and the Strategic Tilting Policy for more information.
StrategiesAbbreviation of value-adding strategies or active strategies.
SwapA derivative in which two parties agree to exchange one stream of cash flows against another.
Swap execution facilitiesA swap execution facility is a trading platform in which multiple participants can trade OTC swaps.
SyntheticObtaining exposures using derivatives.
Systematic Premia

A risk premium is the excess return offered by one asset relative to another. For example, we expect higher returns from risky equities than from safe government bonds. This is the equity risk premium. There are other risk premia that are specific to certain kinds of equities or specific to certain market situations. We call these systematic premia. For example, they can arise from the size of a company or from certain events in its life cycle, such as a merger.

ThemeLong-term influences on the economy and capital markets that are expected to be relatively immune to business cycle and other short-term influences. An enduring characteristic or feature of the global economic or financial environment. See Themes.
TiltChanges in the mix of the Fund’s market or currency exposures relative to the Reference Portfolio (other than those through drift or the proxies). Note that while we generally exclude the differences between market exposures inherent in private market assets (after proxy adjustment) from our definition of a tilt, in effect these private market positions may have elements of a tilt to them. Tilting is a value-add strategy.
Total Return Swap (TRS)A swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, loans, or bonds. This is owned by the party receiving the set rate payment. Total return swaps allow the party receiving the total return to gain exposure and benefit from a reference asset without actually having to own it.
Total riskGenerally referring to the Fund’s total or absolute risk.
Treasury Bills

Debt instruments issued by the government that mature in less than one year; the yield on these measures the cost of running a budget deficit.

UNPRIUnited Nations Principles for Responsible Investment (
Value addSee active return. In performance reporting, the difference between the actual return and the Reference Portfolio return, net of the costs of obtaining passive exposures.
Value-adding strategiesBoard-approved strategies that define the objectives and parameters for taking on active risk. Also referred to as active strategies or just strategies.
Venture capitalMoney provided to fund early-stage businesses with perceived long-term growth potential.
VolatilityThe amount of uncertainty or risk about the size of changes in a security’s value.
YieldThe annual rate of return on an investment expressed as a percentage.