The Press

Adrian Orr and the Super-sized salary

CEO seen as star but Super Fund also has advantages in the market, writes Hamish Rutherford.

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If Orr was motivated by earning top dollar, he would already be in New York, or Sydney at least.

Aren’t we lucky to have Adrian Orr? The former Reserve Bank head of economics who runs the New Zealand Superannua­tion Fund has slowly taken on something of a saint-like status.

A world-leading money man leading a campaign to offset the inevitable financial burden of an ageing population, which Kiwi politician­s are unwilling to confront.

The NZ Super Fund, as we are consistent­ly told, is achieving bestin-class returns. A rate of return of 9.9 per cent a year, meaning New Zealand now had $5.7 billion more than it would have had it left the money in the bank.

‘‘We’ve got a fantastic chief executive who we want to keep,’’ NZ Super Fund chairwoman Catherine Savage said yesterday, after news of her decision to effectivel­y ignore the advice of Prime Minister Bill English and give Orr a potential pay increase of 36 per cent.

Make no mistake – a chair ignoring clear and direct advice from a sole shareholde­r is an extraordin­ary move, which Savage must have been aware of. But she was unrepentan­t, predicting the same disagreeme­nt will happen next year too.

One commentato­r suggested that if Orr had achieved such a return in New York he might have made a billion dollars.

But the situation around NZ Super, and Orr’s stunning pay increase, is not as simple as that.

While it is clearly a top performer, the NZ Super Fund has a massive political advantage over anyone else wishing to drop billions of dollars in New Zealand, a fact often overlooked.

Take, for example, its investment in Z Energy, where it partnered with Wellington investment fund Infratil. Both parties made a profit of about $1 billion from the investment in just over five years.

While NZ Super and Orr no doubt offered valuable advice, the investment was managed by Morrison & Co, the investment bank behind Infratil. The NZ Super Fund’s primary role was as a provider of capital.

Could Infratil have chosen a different partner, say a foreign fund? It is hard to believe it would have been as successful.

Almost since Z Energy was establishe­d its chief executive Mike Bennetts was warning very publicly that margins needed to increase to allow it to invest (credit where it is due, petrol stations were closing at a rate of one a week at the time).

Margins certainly have increased, to the point where Energy Minister Judith Collins has announced an inquiry.

But in the intervenin­g years, until the NZ Super Fund exited its position (it now owns just 1.5 per cent), Z Energy joyfully told customers that filling up at the pump was helping boost our pension pot.

Imagine if a Wall Street fund manager had made such a hefty profit, through an investment which played a significan­t role in making our petrol more expensive. The public would have been up in arms. But only long after the fund sold its shares did the issue hit the spotlight.

Z Energy is not the only time NZ Super has used its position.

When NZ Post chairman Sir Michael Cullen – who ironically establishe­d the NZ Super Fund – announced the partial sale of Kiwibank, he gave a series of bottom lines.

In the following months NZ Super and ACC strong-armed NZ Post into paying for a $90m recapitali­sation of Kiwibank as part of the sale.

What could Sir Michael and NZ Post do about it? Nothing. There was no way Kiwibank could become even 1 per cent privately owned, and the Beehive was licking its lips at the prospect of a $200m special dividend. The former Finance Minister had no one else to turn to.

Have a sensitive asset you want to sell? Life will be a lot easier if it is Orr who writes the cheque.

The point should not be laboured. Almost all sovereign wealth funds have the kind of home advantage which NZ Super enjoys.

In any case, much of the fund’s investment is overseas, where it is just another player.

In 2015 JP Morgan hailed NZ Super as the best performing sovereign wealth fund over five years. London’s Financial Times has written fawning profiles. Orr has what all Kiwis seem to need in their celebritie­s: internatio­nal validation.

Savage, who became chair of the NZ Super Fund in December 2015, says her extraordin­ary disagreeme­nt with the prime minister stems from the fact that he wants to benchmark Orr’s salary with the public sector, while she believes it should be compared to ‘‘the market’’, whatever exactly that means.

But Orr’s job is unique, including in a way that few outside the fund management will appreciate. He never has to ask anyone for money, and there is almost no risk that his one shareholde­r will look to draw any money down at any time in the next decade.

While many fund management heads spend a chunk of their time in marketing roadshows or in meetings where they pitch to have other investors trust them with their money, Orr has a single pot of cash from a long-term investor.

When he goes to marketing meetings, he is the investor, and in New Zealand at least, he is the biggest show in town.

It is a luxury that very few in similar roles enjoy, including those in ‘‘the market’’ which Savage refers to.

As Bill English has said, his criticism of Orr’s pay rise is not a reflection of the talent of the people involved.

But as he added, no matter how many times people tell him public sector jobs need to reflect private sector pressure, there are queues of talented people who apply for the top public sector jobs.

Of course Orr could have earned more elsewhere. But after a decade in the same job, he chooses not to.

Before the episode over his pay he was tipped as a leading candidate to take over at the Reserve Bank, which would come with a big pay cut. If he wasn’t at least interested, he would probably say so.

If he was motivated by earning top dollar, he would already be in New York, or Sydney at least. Clearly he is motivated by something unique to his role, which already comes with a salary few Kiwis will ever enjoy.

If that ever ceases to be the case, then the fund should just let him go. According to Savage, he isn’t even hinting at it.

 ?? PHOTO: MAARTEN HOLL/FAIRFAX NZ ?? Adrian Orr could earn more elsewhere, but those other jobs have downsides he does not have to worry about.
PHOTO: MAARTEN HOLL/FAIRFAX NZ Adrian Orr could earn more elsewhere, but those other jobs have downsides he does not have to worry about.

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