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National Provident Fund
"Only Russell has the intellectual horsepower to model all these issues and advise the board."
Spokesperson: Alan Langford, Chief Executive, Board of Trustees of the National Provident Fund
National Provident Fund has been a client of Russell Investments since 1993. Russell Investments acts as an investment consultant to the Board, providing advice on manager selection, risk management and asset allocation.
NPF was established in 1910 when the Government of the day decided to promote retirement saving facilities for the private sector. It was closed to new members in 1991 to limit the commercial risk the Government faced under the Crown guarantees of the benefits payable by the schemes.
NPF now comprises 11 separate superannuation schemes varying in size from $5 million to more than $500 million. These schemes invest in selected asset classes through the Global Asset Trust (GAT), a unitised structure. The GAT is made up of a number of unit funds, representing each of the major asset classes. Each scheme invests in the GAT according to its own individual asset allocation.
There are a number of factors that make NPF more difficult to manage than most superannuation schemes. Mr Langford says the most complex factor is a requirement to credit members in the defined contribution schemes with an earnings rate of at least 4% pa, after tax and expenses, regardless of the level of investment returns.
"That is quite a challenge when long term interest rates are sitting at around 6-7%," he says. "The difficulty is to manage the schemes to ensure they are able to credit that 4%, regardless of the return. Through the advice of Russell Investments we have introduced appropriate asset allocations for the schemes and a crediting and reserving policy to build up reserves to manage the crediting obligation."
Another complexity is how to manage the Crown's risk under the guarantees. Mr Langford says Russell Investments has quantified the level of risk under the guarantees and has calculated the probability the Crown will have to make a payment under the guarantee.
"What we have found is that in New Zealand, only Russell Investments has the intellectual horsepower to model the complexities we face and advise the Board on the appropriate asset allocations and investment strategies," he says.
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