Sep 9, 2019 · 1h 4m · capital-allocators
Matt Whineray – Leading New Zealand Super Fund (Capital Allocators, EP.108)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Matt Whineray, CEO of the New Zealand Superannuation Fund, exploring the sovereign wealth fund's four competitive endowments, passive reference portfolio model, systematic strategic tilting program, and long-term organizational culture.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 19.1% of the talking time here. How this is scored →
Ted as informed peer 5.2 Guest teaching 4.7 Guest disagreement 0.9 Ted pushing back 0.8
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:01:54 Bat in a pipe metaphor for private asset volatility
Matt mocks pitching managers who claim private assets lack volatility, comparing their linear smoothing models to assuming a bat flies straight through a pipe.
Hardest push from Ted ▶ 19:44 Ted pushes back on the 20% fixed income allocationTed directly challenges Matt on why an institutional fund with multi-decade duration liabilities would allocate as much as 20% to fixed income.
Biggest teaching moment ▶ 12:33 Reframing the true meaning of a long horizonMatt educates allocators who immediately assume long-term investing merely means buying illiquid private equity, clarifying that it fundamentally means never being forced to sell.
Ted holds their own ▶ 44:24 Ted highlights the risk of external manager consensus captureTed demonstrates keen allocator expertise by asking if dynamic allocations based on manager conversations inadvertently create consensus risk rather than mean-reverting contrarian positioning.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Matt Whineray's Career Journey to Superfund CEO | 4 | 3 | 0 | 0 | Ted opens by asking about Matt's career transition from law to banking and Superfund leadership, as well as the initial setup of the fund. Matt provides straightforward historical context and timeline details without friction. | |
| Foundational Governance, Endowments, and Reference Portfolio Framework | 4 | 5 | 1 | 1 | Ted prompts Matt on the framework used given the fund's lack of immediate liquidity needs. Matt systematically breaks down the mandate, the four specific endowments, and the transition from strategic asset allocation to reference portfolio. | |
| Deep Dive into the Superfund's Four Endowments | 4 | 6 | 2 | 0 | Matt deconstructs conventional misconceptions about long-term investing, clarifying that long horizons do not inherently necessitate private equity or massive illiquidity. He educates on how horizon and known liquidity interact. | |
| The Nine Core Investment Beliefs Underlying Strategy | 5 | 5 | 1 | 0 | Ted asks Matt to list the fund's nine investment beliefs. Matt distinguishes between empirical beliefs (like mean reversion) and foundational facts (like costs mattering), educating on how beliefs form the bedrock of strategy. | |
| Constructing and Benchmarking the 80/20 Reference Portfolio | 7 | 5 | 2 | 6 | Ted pushes back with an informed query asking why an institution with long-duration liabilities holds as much as 20% in fixed income. Matt defends the allocation citing rebalancing liquidity, drawdowns, and institutional survival. | |
| Target Operating Model and Active Risk Allocation Framework | 5 | 5 | 1 | 0 | Ted asks how the fund constructs active risk against the reference portfolio. Matt explains the Target Operating Model (TOM) and the shift away from rigid strategic asset allocation towards systematic risk budgeting. | |
| The Five Distinct Risk Baskets and Sourcing Access Points | 5 | 5 | 0 | 0 | Matt delineates the five risk baskets (structural, real assets, broad markets, credit/funding, asset selection) and explains how access points are sourced internally versus externally. | |
| Managing Risk Budgets, Target Allocations, and Actual Exposures | 6 | 4 | 1 | 1 | Ted probes into how dynamic risk allocations are and how accountability differs from traditional SAA. Matt explains the budget versus target versus actual framework and clear performance attribution. | |
| In-House Execution vs External Manager Selection Criteria | 5 | 5 | 1 | 0 | Matt details the criteria for choosing between internal management and external managers, emphasizing alignment, risk control, and avoiding pooled vehicle peer pressures over pure fee minimization. | |
| Structure and Asset Class Scope of Strategic Tilting | 7 | 5 | 1 | 2 | Ted drills down into whether strategic tilting goes down to sector or individual security levels. Matt explains why they limit tilting to macro market levels to maintain high confidence without diluting information ratios. | |
| Equilibrium Modeling and Sizing Active Risk in Tilting | 5 | 5 | 0 | 0 | Ted asks about equilibrium valuation metrics and sizing active risk in the tilting strategy. Matt explains their DCF models, economic identities, and why tilting accounts for 2.5% out of a total 4% active risk budget. | |
| Role and Infrastructure of the Portfolio Completion Team | 5 | 5 | 1 | 0 | Ted inquires about the role of the portfolio completion team. Matt explains how the post-GFC re-architecture created in-house liquidity, derivative execution, FX hedging, and direct arbitrage capabilities. | |
| Manager Sizing, Consensus Risks, and Institutional Governance | 7 | 4 | 2 | 5 | Ted presses on external manager selection, asking whether relying on managers for market views creates consensus risk. Matt explains their cross-functional basket teams that prevent manager capture. | |
| Organizational Design of the Investment and Portfolio Teams | 5 | 4 | 0 | 0 | Ted asks for a breakdown of internal organizational design. Matt outlines the structure across the investment group under Stephen Gilmore and the portfolio completion group under Mark Fennell. | |
| Assessing Asset Class Life Cycles and Return Compression | 6 | 6 | 1 | 0 | Ted asks about markets conducive to active management and where asset classes sit in their life cycles. Matt gives nuanced analysis on New Zealand equities, forestry maturity, life settlements, agriculture, and private equity return compression. | |
| Challenges and De-Emphasis of Thematic Investing Strategies | 5 | 5 | 2 | 0 | Ted asks about thematic investing and ESG engagement. Matt candidly admits that thematic investing was de-emphasized due to implementation difficulty, then explains their post-Christchurch social media engagement initiative. | |
| Preparing for Inflows, Venture Capital Mandate, and Scaling Strategy | 4 | 4 | 0 | 0 | Ted asks about priorities for the coming year. Matt discusses their new domestic venture capital mandate, preparing the portfolio for scaling as government contributions restart, and expanding support operations. | |
| Defining Organizational Values and Cultivating Team Culture | 4 | 4 | 1 | 0 | Matt explains the values project and four core cultural principles ('stand strong', 'support each other', 'future focused', 'team not hero'). In closing questions, he illustrates the illusion of private asset smoothing using a bat-in-a-pipe metaphor. |
Statements from this episode (47)
Whineray: NZ Super Fund is forecast to grow through the end of the century
“And so at the moment that model shows Some withdrawals from the fund in the mid- twenty-thirties, but it's a function of the way that model's working that there are some withdrawals then, but really the big withdrawals start in the mid- twenty-fifties. But eve…”
Whineray: NZ Super Fund mandate has three statutory requirements
“So what the mandate says is, We need to maximize return without undue risk. We need to use best practice portfolio management, and we need to not prejudice New Zealand's position as a responsible member of the world community.”
Whineray: NZ Super Fund switched to reference portfolio framework in 2010
“In the beginning, we started with a strategic asset allocation. From 2010, we switched to a portfolio construction approach where we use a reference portfolio.”
Whineray: Long-term investing fundamentally means never being forced to sell
“Ultimately, it means you're never forced to sell something. Your long horizon allows you to hold things through cycles and allows you to withstand volatility as long as it's combined with that liquidity, the liquidity profile allows you to do that.”
Whineray: NZ Super Fund's reference portfolio is purely passive and listed
“The reference portfolio is just a pure passive listed expression.”
Whineray: NZ Super Fund is legally prohibited from owning 100% of any private business
“Because we have a restriction in our legislation that says that we can't control any entity, so we can't own a hundred percent of a private business. We have to have partners.”
Whineray: Asset allocation drives the bulk of portfolio outcomes
“Asset allocation is the key investment decision, so that bulk of the outcomes are determined by what your asset allocation is.”
Whineray: Manager skill is rare and difficult to identify in advance
“Manager skill is rare, so the ability to consistently beat a benchmark, it's really hard to identify in advance. Sometimes it's often hard to identify after the fact, right?”
Whineray: Institutional crowding drives asset class excess returns toward zero
“As more institutional investors get into an asset class, then perhaps the excess returns decline over time to possibly zero or worse, less than that because of fees.”
Whineray: NZ Super Fund's reference portfolio is 80% equities and 20% fixed income
“Eighty-twenty. So it's a pretty growthy portfolio. So there's 65 developed market equities, 10 emerging market, five New Zealand equities, that adds up to 80, and then 20% fixed income.”
NZ Super Fund beat benchmark in 11 of 15 years
“I think we've had 11 positive value add years over the last 15. We've added nearly one and a half percent a year, which is worth sort of eight billion to the New Zealand taxpayer.”
NZ Super prioritizes risk allocation control and fewer, larger manager relationships
“What the target operating model sees is we want to have sort of simpler processes. We've got, want to have more control over the allocation. So that is the risk allocation that, as opposed to the individual investment decisions, but the risk allocation, we wan…”
NZ Super structures active risk allocation across five opportunity baskets
“The risk budgeting process says, alright, we've got a bunch of opportunities, we'll put them into these five different baskets, is what we call them, and then we'll allocate some risk through time to those things, and then the teams are then tasked with going …”
Whineray: Strategic tilting is NZ Super Fund's largest active risk
“Strategic tilting, biggest chunk of active risk in the fund. We do that ourselves.”
NZ Super Fund uses Canyon and Bain for distressed credit
“Other things like stress credit, we'll use Canyon or Bain because we're not going to be able to have that expertise in house”
Whineray: Risk budgets should be fixed for years while targets adjust
“So the target does move around. The budget doesn't. Budget we should be looking at every few years, because that shouldn't be changing much. I mean, what's your relative confidence in timber versus global macro versus distressed, or whatever it happens to be. …”
Strategic asset allocation forces allocations regardless of market attractiveness
“The SAA says you're going to have five percent infrastructure whether you think it's attractive or not. You're going to have five percent timber whether you think it's attractive at the time or not. We wanted that to be a little bit more dynamic and a little b…”
Reference portfolios create clearer decision accountability than SAA models
“You're able to much better attribute accountability for decisions because in an SAA world, you can never actually be at five percent infrastructure. So why are you not there? Are you not there because management has chosen not to be there because they don't re…”
NZ Super Fund manages strategic tilting entirely through derivatives
“Strategic tilting is entirely managed through derivatives. It benefits from the liquidity management that our portfolio completion team runs and the counterparty risk that we represent as a fund as a whole.”
Outsourcing strategic tilting fails when pooled LPs lose nerve
“The thing about strategic tilting is that you can be for a long time underwater, and because you're waiting for these markets to mean revert, and they might be slow, or they might move further away from whatever you think the mean is, and so that one we though…”
External managers provide better flexibility for cyclical mandates
“In a construct like ours where through time we might be in those, we might not be in those, it's very hard if you've built the team internally to say, actually, we just don't want to invest anything in this opportunity, because then you've got a team who's sit…”
Whineray: NZ Super Fund tilts equities, bonds, currency, credit, and commodities
“That's got global equities, global bonds, Currency. It's got some credit. So it's sovereign and credit. We've just recently introduced a small bit of risk in commodities. So we're starting to tilt those as well.”
Whineray: NZ Super Fund avoids security-level strategic tilting
“So we haven't gone down below to sector or individual securities because we're more confident at the whole of market level of being able to say, what do we think the long run equilibrium prices or value is? And then compare that to the current price. When you …”
Whineray: Expanding tilting breadth to individual securities degrades performance
“So you can increase breadth, but I think you reduce confidence, and so we probably don't improve the performance of that by doing that. I think that's the key, is to have breadth of non, hopefully uncorrelated positions, but without destroying the confidence b…”
Whineray: NZ Super Fund allocates 2.5% active risk to strategic tilting
“The budget for tilting at the moment is about two and a half percent active risk at the fund level, within a total active risk budget of four percent.”
NZ Super Fund lacked liquidity visibility before the GFC
“We created that after the GFC. So going into the GFC, all of our stuff was outsourced, and we didn't have great views of almost anything, liquidity or risk or any of that.”
Flexible external mandates require around $200 million check sizes
“And so you can't do that if you're turning up with a fifty million dollar check. What we found is actually around about 200, you start to have the ability to create a flexible mandate.”
Whineray: Bespoke mandates require larger, sophisticated asset managers
“If you've got a bunch of different mandates, and you've got a fund, for example, and you find an asset, you've then got to say, okay, well, I'm going to give three bits to the fund, and one bit to this mandate, you know. That sort of allocation infrastructure,…”
Whineray: Manager capital deployment pace signals market attractiveness
“Generally speaking, if a manager is slow from allocation perspective in terms of, well, slow versus what, but you know, not seeing lots of opportunities, that's pretty useful information for us, because that says, well, actually, maybe this isn't that attracti…”
Whineray: NZ Super team structure protects against manager capture
“The other way we try to deal with that is those risk basket teams have got a bunch of different people in them, so that it's not just the person who is dealing with the manager at the access point level who is doing the target allocation, it's that team that's…”
NZ Super Fund investment function employs 55 to 60 people
“So there's about 50 in the investment group. There's about 10, I think, in the portfolio, the overall portfolio completion. So maybe we're in the sort of the 55, 60, somewhere around there.”
Median active equity manager in New Zealand generates alpha
“So we do think that in New Zealand, so the New Zealand active equity market is an interesting one in the sense that the median manager Has been able to generate alpha or, you know, excess returns over time.”
Whineray: NZ Super Fund holds zero active managers in developed listed markets
“We've got two managers in New Zealand that run active equities. We've got one global emerging markets active manager, and that's it. Right. So we don't have any developed markets, active managers. We don't have any fixed income market active managers in those …”
Whineray: US active equity market pays fees without generating alpha on average
“Whereas you go to the US Market is a lot of active managers in there. And on average, the whole market is paying fees, but not generating alpha.”
Whineray: Forestry has matured through its institutional lifecycle
“Forestry, I think is, you know, you go back from an institutional investor perspective, maybe 1015 years. Started, the Timo's started up, and institutional investors started to allocate the timber, and then you had all this big trade where all of the timber as…”
Whineray: Agriculture remains early in lifecycle due to lack of scale
“I think farming is, and agriculture is still earlier in the life cycle one. I think that because It's just hard to get scale in that, right? So whereas in a, you might be able to buy a billion dollar forest, You can't buy a billion dollar farm. You come to New…”
Whineray: Excess returns in mid-market private equity have compressed
“When you think about others like private equity, it just feels like there's just more and more allocation to that, and that market which might have been much more inefficient for unlisted companies, you know, in the two to three to 400 Million dollar range a f…”
Whineray: Investors can fit almost any investment into a defined theme
“And what you find, I think, a little bit is that you can almost back any investment you like into whatever theme you've defined.”
Whineray: Track records of thematic managers are not fantastic
“And you go and you look at thematic managers around the place, and the records aren't necessarily fantastic, right?”
Whineray: NZ Super Fund brought global proxy voting in-house
“We brought that in-house last year. We vote all of our shares globally, and then we also have an active engagement program.”
NZ Super Fund leads $10T investor coalition on social media moderation
“Post the Tragedy in Christchurch, we, together with another group of the New Zealand Crown Investors. We got together to lead an engagement with the social media companies about the, well, aimed at preventing the live streaming of objectionable content and sub…”
Whineray: NZ Super Fund is managing a new 300M venture mandate
“The new mandate's small comparatively. It's only going to be about three hundred million compared to forty two billion, so you've got a lot of disparity”
Whineray: NZ Super Fund could reach $80B in 6–7 years
“So we'll get a couple of billion dollars a year, and touch wood, we'll get some investment returns on top of that, and so we'll grow quite a lot faster. So fast forward six, seven years, we could be eighty billion dollars.”
Whineray: Direct investment is hard to scale, but tilting scales easily
“Direct investment is a challenge to scale. Some things are, strategic tilting is easy to scale, but some things aren't”
Whineray: Storytelling reveals authentic organizational values better than direct questioning
“So you're not going to someone and saying, Oh, what are you value? You're going to someone and say, tell us a story. And those stories are really powerful. And we got great engagement with it and came up with a new set of values for the organization.”
Private market low volatility is an illusion exposed in distressed markets
“I think it probably comes down to when you're receiving pitches, people have what I think of as kind of imaginitis around the lack of volatility of private market assets. So Yeah, you get this bit, which is, oh, these things aren't volatile. It's like, okay, w…”