Glossary

An active investment mandate encourages an Investment Manager to seek a more aggressive investing strategy to exceed the performance benchmark.

Alternative assets are those in an asset class that is not publicly traded. This typically includes Private Markets investments.

The term anti-money laundering is mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Financial institutions globally are generally required to monitor, investigate, and report transactions of a suspicious nature to the financial intelligence unit of the central bank in the respective country. For example, a bank must perform due diligence by having proof of a customer’s identity and that the use, source, and destination of funds do not involve money laundering.

Asset allocation is the process of allocating and recording funds in a portfolio based on the distinct asset classes where investments have been made. For example, property or New Zealand small cap equities (see also Strategic Asset Allocation).

An asset class is a type of investment, such as stocks (equities), bonds (fixed income) or cash (money markets).

A benchmark is a point of reference used by an Investment Manager to evaluate fund investment performance.

Business continuity management is the way that an organisation prepares for future events that could jeopardise critical operating functions to the detriment of its core objectives or long-term health.

A Contribution Payment Schedule is a forecast schedule of expected cash payments from the Crown (through the Treasury) available to the Guardians of New Zealand Superannuation for investment.

The term control refers to an existing process, device, practice, or action that minimises negative risks or enhances positive opportunities.

A custodian is an independent organisation entrusted with holding investments and settling transactions on behalf of the owner. A custodian maintains the financial records for the investments and may perform other services (such as performance measurement and investment mandate compliance) for the owner.

Disaster recovery is the process of regaining access to the data, hardware, and software necessary to resume critical business operations.

Due diligence is the process of investigating Investment Managers or potential investments to gain confidence about their abilities or future performance. This involves requesting, understanding, verifying, analysing, and evaluating information (such as financial, legal, historical, or criminal).

Funds under management is a measure of the total amount of funds being managed by an Investment Manager on behalf of the Guardians of New Zealand Superannuation or by the Guardians.

An Investment Manager is a firm or person appointed by the Board to manage and invest a portfolio of investments for the Guardians of New Zealand Superannuation. Investment Managers are governed by their respective investment mandates.

An Investment Manager Agreement is an agreement between the Guardians of New Zealand Superannuation and an Investment Manager. It sets out the contractual obligations, requirements, restrictions, and other terms and conditions for the Investment Manager to invest the New Zealand Superannuation Fund.

An investment mandate is a formal document that is part of the Investment Manager Agreement. It states the authorised investments and restrictions placed on the investment activities of the Investment Manager.

Liquidity is a term that refers to an asset’s ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value.

The Master Custody Agreement is the agreement between the Guardians of New Zealand Superannuation and their appointed custodian (the Custodian) that sets out the contractual obligations, requirements, and other terms and conditions for the Custodian to carry out its responsibilities. (Expected service levels are set out in a separate document, the service level agreement.)

The operational strategy is a plan to achieve the operational goals of the Guardians of New Zealand Superannuation.

Outsourcing refers to the contracting out of parts of the Guardians of New Zealand Superannuation’s activities to third party (external) service providers. While activities are contracted out, the responsibility for these activities still lies with the Guardians.

A passive investment mandate encourages an Investment Manager to meet its performance benchmark. It does not require an Investment Manager to attempt to actively outperform the benchmark.

A performance fee is a remuneration structure in an Investment Manager Agreement to reward the Investment Manager with more fees should it meet certain criteria. This fee is not paid if the criteria are not met.

Private Markets is a type of equity asset category where the equity securities are not freely traded on any recognised stock exchange.

Responsible investment refers to the requirement of the New Zealand Superannuation and Retirement Income Act 2001 that the Guardians of New Zealand Superannuation invest in a manner that avoids prejudice to New Zealand’s reputation as a responsible member of the world community.

A risk management framework is a structured approach to managing uncertainty by assessing risk, developing strategies to manage risk, and assigning accountability. The strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.

A SAS 70 report is a report under the Statement on Auditing Standards (SAS) No. 70 auditing standard set by the American Institute of Certified Public Accountants. The SAS 70 report is supplied by entities (for example, the Custodian) to the Guardians of New Zealand Superannuation to give assurance over the external provider’s internal control effectiveness. The report includes an in-depth analysis of control objectives and control activities, including controls over information technology and related processes.

A security is an interest or right to participate in any capital, assets, earnings, royalties, or other property of any person. It may, for example, include an equity security, a debt security, or a unit in a unit trust.

A service level agreement is an agreement between the Guardians of New Zealand Superannuation and a service provider (for example, the Custodian) that outlines the service quality and deliverables that are expected as part of the contract.

Strategic Asset Allocation is the division of assets within an investment portfolio, taking the long-term view of the risk and return profile of those asset classes, designed to best achieve the portfolio’s long-term objectives.

The United Nations Global Compact is an initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on them. The United Nations Global Compact has 10 underlying principles for responsible investment (UNPRI) that guide an organisation’s policies. They include human rights, labour standards, the environment, and measures to combat corruption.

Volatility is a measure of the degree to which an investment’s value fluctuates through time. Volatility is typically expressed in annualised terms, and it may be either an absolute number ($) or a fraction of the initial value (%).