The Sovereign Wealth Fund Response

The International Forum of Sovereign Wealth Funds (IFSWF) is a voluntary organisation of sovereign wealth funds. It is committed to working together and strengthening its activities through dialogue, research and self-assessment. <ul style="display: flex;"><li style="flex:1">IFSWF was formed in 2009 by </li><li style="flex:1">a</li><li style="flex:1">group of state-owned </li></ul>international investors from around the world. The Forum’s aim is to maintain an open and stable investment climate by setting and following a set of principles and practices, known as the Santiago Principles, which address issues around institutional governance and risk management. Today, helping members implement the Santiago Principles remains the foundation of the IFSWF’s activity. IFSWF represents sovereign wealth funds from all corners of the globe, with a variety of mandates and at various stages of development. As a result, the Forum’s focus has evolved. In addition to encouraging ongoing commitment to the Santiago Principles, the Forum undertakes research, peer assistance and holds workshops and seminars to help members enhance their investment capabilities. MEMBERS Angola Fundo Soberano de Angola Australia Future Fund Azerbaijan State Oil Fund of the Republic of Azerbaijan Botswana The Pula Fund Canada Alberta Heritage Savings Trust Fund Chile Economic and Social Stabilization, and Pension Reserve Funds <ul style="display: flex;"><li style="flex:1">China </li><li style="flex:1">Iran </li></ul>National Development Fund of Iran Ireland Ireland Strategic Investment Fund China Investment Corporation Italy CDP Equity SpA Kazakhstan JSC Samruk-Kazyna Kazakhstan JSC National Investment Corporation of the National Bank of Kazakhstan <ul style="display: flex;"><li style="flex:1">Korea </li><li style="flex:1">Kuwait </li></ul>Kuwait Investment Authority Libya <ul style="display: flex;"><li style="flex:1">Korea Investment Corporation </li><li style="flex:1">Libyan Investment Authority </li></ul>Malaysia Khazanah Nasional Berhad Mexico Budgetary Income Stabilization Fund Morocco Ithmar Capital New Zealand New Zealand Superannuation Fund Nigeria Nigeria Sovereign Investment Authority Oman State General Reserve Fund Palestine Palestine Investment Fund <ul style="display: flex;"><li style="flex:1">Qatar </li><li style="flex:1">Russia </li></ul><ul style="display: flex;"><li style="flex:1">Qatar Investment Authority </li><li style="flex:1">Russian Direct Investment Fund </li></ul>Rwanda Agaciro Development Fund Singapore GIC Private Limited Timor-Leste Timor-Leste Petroleum Fund Trinidad and Tabago Heritage and Stabilization Fund United Arab Emirates Abu Dhabi Investment Authority United States of America Alaska Permanent Fund Corporation FOREWORD FROM THE MAYOR OF AUCKLAND On behalf of Auckland, it is my pleasure to welcome you to our city for the annual meeting of the International Forum of Sovereign Wealth Funds. It is exciting to host such a distinguished group of people to New Zealand. Auckland is a diverse and rapidly growing city. It is the home of New Zealand’s financial sector, and it has long been the commercial heart of New Zealand. Auckland has 35 percent of New Zealand’s population, 32 percent of our production and more than half of this country’s growth. Auckland is New Zealand’s international city. By attracting and retaining the talent and enterprise that New Zealand needs to progress, it serves New Zealand as a whole. I had the privilege of serving as an Auckland Member of Parliament for thirty-five years, before being elected Mayor of Auckland in October. The new council is committed to creating a welcoming environment for business, as well as making the city a great place to live. Auckland has a stunning environment. It has a richness of cultural diversity. It offers the people who live in our city choice and opportunity. However, as we grow we are faced with challenges. Everywhere you will see signs of major investment in infrastructure and commercial development, some of it assisted by finance from international organisations such as those you represent. A major city rail project is under way, urban redevelopment is expanding in the Viaduct Harbour and nearby Wynyard Quarter, new hotels and a major commercial centre are all under development in the area immediately around your conference venue. Like all cities, we face challenges. Traffic congestion and housing affordability are major issues ahead. But the Auckland Council is determined to make our city a place where talent and enterprise want to live, a place that is a centre of learning and innovation, and a city that is an exciting place for people to live and to visit. We want our city to become one of the best performing cities in the world. OPEN FOR BUSINESS Aotearoa New Zealand is a country shaped by the land and sea. Geologically, it is a young country, known for its rugged and varied landscape. Surrounded by the Pacific Ocean, New Zealand’s small population and distance from the rest of the world has made its people resourceful, independent and friendly, with a relaxed way of life. Auckland is one of the few cities on the planet to have two harbours on different oceans. The central urban area occupies a narrow isthmus between the Manukau Harbour on the Tasman Sea and the Waitemata Harbour on the Pacific Ocean. Its landscape features beautiful beaches, more than fifty islands, fifty-three dormant volcanoes and hills of unique native forest. The region was first settled by Māori at least eight hundred years ago, after long and difficult voyages across the Pacific. Its fertile land and abundant marine life attracted a number of tribes to the area, including Ngāti Whātua. Auckland was known as the Tāmaki Makaurau, or the “land of a thousand lovers”. Auckland was established in 1841 as New Zealand’s capital - an honour it retained until 1865 - and it rapidly became the commercial heart of the country and centre of trade, a position it retains today. With 1.5 million people, Auckland is the largest city in New Zealand. It is culturally diverse: 23 percent of its population is Asian, 15 percent is Pacific Island and 11 percent is Māori. Forty percent of its population was born overseas. It has the largest Polynesian population of any city in the world, and the second most spoken language is Samoan. Auckland ranks third out of 230 cities in the Mercer Quality of Living Survey and eighth out of 140 cities in the Economist Intelligence Unit global liveability study. WELCOME FROM ADRIAN ORR, CHAIR The Guardians of New Zealand Superannuation is delighted to host the 2016 meeting of the International Forum of Sovereign Wealth Funds. We are proud of our country and pleased to have the opportunity to showcase our way of life, our economy and our business settings. I am also very proud of what the staff of the New Zealand Superannuation Fund has been able to achieve since the Fund started thirteen years ago, particularly given the challenging investment environment since the Global Financial Crisis. As an organisation, we are committed to the International Forum of Sovereign Wealth Funds because we believe strongly in sharing ideas and learning from those tasked with achieving the same goals for their citizens: the well-being of current and future generations. The Forum also has an important role in the global economy: promoting good governance, sound investment practice, transparency and accountability, as well as spreading understanding about sovereign wealth funds. Sovereign wealth funds have increased in number, scale and size over the past decade. Their global significance and economic impact has expanded considerably. In many ways, sovereign wealth funds are similar to other longterm investors. We can ride out short-term volatility and invest in counter-cyclical ways. But as funds that are owned by governments, we have some distinguishing features. Our sovereign status makes us welcome investment partners around the world, bringing both responsibility and privilege. These meetings are an important opportunity for us to reflect on these issues and to equip ourselves towards becoming better investor - ones that are patient, resilient and accountable to those who place their trust in us. This meeting in Auckland will cover both the big issues - the low-growth economic context and the effect of climate policy on investment - as well as technical and operational issues. The Guardians of New Zealand Superannuation thanks the commercial partners who have joined us to support the open conference sessions of this meeting. They are BlackRock, BNP Paribas, BNZ, Commonwealth Bank of Australia, Deloitte, Goldman Sachs Asset Management, Investec Asset Management, JP Morgan, KPMG, Morgan Stanley, Northern Trust, PwC, State Street and Westpac. We hope you enjoy this opportunity to get to know Auckland and New Zealand. Adrian Orr Chief Executive, Guardians of New Zealand Superannuation Chair, International Forum of Sovereign Wealth Funds IFSWF BOARD MEMBERS MAJED AL ROMAITHI IFSWF Deputy Chair Chairman of the Management Committee, Executive Director, Abu Dhabi Investment Authority LI KEPING IFSWF Board Member Vice Chairman, President and Chief Investment Officer, China Investment Corporation DEANNA ONG IFSWF Board Member Company Secretary and Managing Director, GIC Private Limited H.E. SHEIKH ABDULLA BIN MOHAMMED BIN SAUD AL-THANI IFSWF Board Member Chief Executive Officer, Qatar Investment Authority, Chairman and Chief Executive Officer, Qatar Holding, Member of the Supreme Council for Economic Affairs and Investment VENUE AND TRANSPORT SUMMARY <ul style="display: flex;"><li style="flex:1">DATE </li><li style="flex:1">TIME </li><li style="flex:1">LOCATION </li><li style="flex:1">ACTIVITY </li><li style="flex:1">INVITEES </li></ul><ul style="display: flex;"><li style="flex:1">Tuesday, </li><li style="flex:1">Members </li></ul>and official observers Sofitel, Auckland Viaduct <ul style="display: flex;"><li style="flex:1">8th </li><li style="flex:1">All day </li><li style="flex:1">Technical workshops </li></ul>November Members and official observers Sofitel, Auckland Evening Morning Workshop dinner Viaduct Wednesday, 9th November Members and official observers Viaduct Events Centre IFSWF Annual Meeting Afternoon (including lunch) Viaduct Events Centre Open conference sessions All delegates All delegates Viaduct Events Centre <ul style="display: flex;"><li style="flex:1">Evening </li><li style="flex:1">Conference dinner </li></ul>Thursday, 10th November Viaduct Events Centre Open conference sessions <ul style="display: flex;"><li style="flex:1">All day </li><li style="flex:1">All delegates </li></ul>All delegates Sofitel Coach transfers from hotels to the Auckland War Memorial Hilton Hotel Mercure 6.10 pm Evening Viaduct Events Centre Museum Auckland War Memorial Museum <ul style="display: flex;"><li style="flex:1">Gala dinner </li><li style="flex:1">All delegates </li></ul>All delegates Coach transfers from museum to Sofitel, Hilton Hotel and Mercure Auckland War Memorial Museum Friday, 11th November Members and invited guests <ul style="display: flex;"><li style="flex:1">9am to 4 pm </li><li style="flex:1">Waiheke Island </li><li style="flex:1">Networking excursion </li></ul>INVESTING IN A TIME OF UNCERTAINTY: THE SOVEREIGN WEALTH FUND RESPONSE The current investment environment is unprecedented. Inflation and growth are low, and central banks continue to ease monetary policies in conventional and novel ways. Bond yields are lower than ever before and asset class valuations are stretched by both historical and prospective measures. These trends are happening in a context of a potential structural decline in labour productivity, low wage growth and rising inequality. The resulting frustration and disparity is driving local and international politics. How this plays out has yet to be fully appreciated, but the consequences for societies and markets will be far reaching. At the same time, climate change has become the defining social, economic and ecological challenge of our time. The Paris Agreement on Climate Change shifted attention from debate on the science to concrete targets and actions. Proposed or agreed government actions mean that investment portfolios face new classes of risk that are poorly understood. Sovereign wealth funds must contend with each of these risks and find new investment opportunities to suit their status as long-term, state-owned, commercial investors. TECHNICAL WORKSHOPS TUESDAY 8TH NOVEMBER Venue: Sofitel Members and observers Participation in the technical workshops is open to all IFSWF members and observers. The workshops are intended to address topics in detail. At the start of each workshop, co-chairs will highlight the features of the problem, the decision variables and the solution options. It is then expected that members will share their experiences, contribute questions and comment as appropriate to a closed forum of peers. WORKSHOP 1 - SOVEREIGN DEVELOPMENT FUNDS TIME: 9:00am - 10:20am Overview: Several IFSWF members have mandates that include economic development or strategic investment. Member funds will discuss investment models, paying particular attention to benchmarking and economic impact evaluation, governance for domestic investments and applying the Santiago Principles. Discussion led by: •• Shanthi Divakaran, World Bank Patrick Schena, The Fletcher School, Tufts University With: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Eugene O’Callaghan, Ireland Strategic Investment Fund </li></ul>10:20am - 10:45am Coffee WORKSHOP 2 - PERFORMANCE MEASUREMENT AND BENCHMARKS TIME: 10:45am - 12:00pm Overview: Investors commonly use performance measurement and benchmarks to measure the success of their strategies. What type of expected qualitative performance metrics should be set ahead of time? How do these differ in the short and long terms? What are the characteristics of a good benchmark for a long-term investor? How are benchmarks best used at the strategy level, the portfolio level, and at the level of monitoring individual asset manager performance? What fee and incentive structures are consistent with this approach for external and internal investment management? Discussion led by: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Bernardo Bortolotti, Sovereign Investor Lab, Bocconi University </li></ul>With: •• Kyle Delaney, Bridgewater Associates Will Kinlaw, State Street 12:00pm - 1:30pm Lunch and break (including Sub-Committee meetings from 12:30pm to 1:30pm) WORKSHOP 3 - INFRASTRUCTURE SHOWCASE TIME: 1:30pm - 2:45pm Overview: Estimates of global infrastructure requirements are increasing each year. Governments at all levels are facing massive shortfalls in their ability to fund these requirements. Old, publicly funded, pay-as-you-go infrastructure financing has reached limits in the age of austerity. New privately funded or partnership models for infrastructure finance have faced many problems. At the same time, huge sources of long-term capital are ‘locked out’ from participating in infrastructure investment. What explains the ‘infrastructure wedge’? Where are the most compelling opportunities - in which geographies and sectors? How have members approached infrastructure investments? Discussion led by: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Richard Abadie, PwC </li></ul>With: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Rajiv Sharma, Global Projects Center, Stanford University </li></ul>2:45pm - 3:10pm Coffee WORKSHOP 4 - DIVESTMENT: A SPOTLIGHT ON TOBACCO TIME: 3:10pm - 4:30pm Overview: How do institutions think about divestment? How is divestment balanced against engagement and other approaches to responsible investment? What are the obligations of sovereign wealth funds under the United Nations Tobacco Treaty? Are SWFs meeting those obligations? What has the experience of SWFs been in tobacco-free investment? Introduction: Martin Skancke, Principles for Responsible Investment Discussion led by: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Clare Payne, Tobacco Free Portfolios </li></ul>With: •• Bronwyn King, Tobacco Free Portfolios Mats Andersson, former Chief Executive AP4 WORKSHOP 5 - INSOURCING INVESTMENT ACTIVITY TIME: 4:30pm - 5:30pm Overview: A marked trend in recent years within large public institutional investors and SWFs has been the insourcing of investment activity. Why are SWFs bringing activity in-house? What has been the experience so far? What activities should and should not be insourced? What are the implications for staffing and other resource requirements? How should success be evaluated? Discussion led by: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Daniel Adamson, Wafra Investment Advisory Group </li></ul>5:30pm - 8:30pm Drinks and Dinner - Workshop participants WEDNESDAY 9TH NOVEMBER ANNUAL MEETING Members and observers Venue: Viaduct Events Centre 8:00am onwards Light breakfast available ANNUAL MEETING 9:00am - 11:30am At the eighth annual meeting of IFSWF, the Forum’s activities and accounts for the past financial year will be presented to the members. Sub-Committee presentations and case studies (Includes coffee break and group photo) 11:30am - 12:00pm KEYNOTE - GLENN STEVENS, AC 12:00pm - 1:00pm Lunch OPEN CONFERENCE SESSIONS All delegates Venue: Viaduct Events Centre WELCOME ADDRESS - ADRIAN ORR Chair, IFSWF, and CEO, New Zealand Superannuation Fund 1:00pm - 2:00pm OPENING REMARKS - DUNCAN BONFIELD Chief Executive, IFSWF KEYNOTE - JOHN LIPSKY Distinguished Scholar, Johns Hopkins University PANEL 1 - INVESTMENT RISK AND RETURNS IN THE CURRENT ENVIRONMENT 2:00pm - 3:15pm Overview: Today’s investment environment is characterised by low growth and low returns. In a world awash with liquidity, yields have slumped to all-time lows and valuations across many different asset classes appear stretched on many alternative measures. Commodity price declines have led to reduced inflows to some SWFs and in some cases to higher withdrawals as governments seek to stabilise their fiscal positions. What does a good strategic response look like? What opportunities are SWFs uniquely positioned to pursue? How should SWFs react to short-term market volatilities and be better positioned for structural, long-term macro themes? Chair: <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Uche Orji, Nigeria Sovereign Investment Authority </li></ul>Panellists:

The Sovereign Wealth Fund Response

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