Term Definition Relevant Policy

Transcription

1 Glossary of Terms for Policies effective 1 July 2011 Those terms bolded in black are defined in this Glossary. Those terms in blue are defined in the Glossary of Terms comprising part of the Framework. Term Definition Relevant Active Strategies Actual portfolio: Approved CIV Approved Product See value adding strategies the Fund s portfolio at any point in time reflecting all the positions arising from the Fund s value adding strategies as well as drift. Conceptually, the actual portfolio equals the reference portfolio plus drift plus active risk. A CIV that has been approved by the General Manager s as an Approved in accordance with the or Direct. Is a Product that has been approved under and is listed in Schedule 5a of that policy Direct Allocation Internally Managed Strategic Tilting, Sub, Sub Authorised Dealer Authorised Signatory Is a member of staff of the Guardians who is authorised by the Chief Executive to transact specified Direct Transactions. Is a Board member or member of staff who has been approved by the Board to sign legal documentation on behalf of the Guardians in those circumstances determined under the Document Version 3 1

2 Term Definition Relevant BCM and BCP Business Unit Capital Capital Constraints Capturing Active Returns Clearing House Collective Vehicle (CIV) Business Continuity Management and Business Continuity Plans The business unit managed by a Direct Report of the Chief Executive The sum invested in a particular asset or asset class Constraints limiting the amount of the Fund s capital that may be invested in particular assets or asset classes. See Active Returns Is an institution where mutual claims and accounts are settled. For example when futures contracts are traded between two parties their respective claims are settled through the Clearing House. An investment structure that provides a mechanism to share exposure with other investors. The legal nature of these structures may vary. Examples of CIVs are direct co-investments, partnerships, limited partnerships, companies, debt instruments, unit trusts, managed investment schemes and trusts. Risk Management Risk Management Risk Allocation Strategic Tilting, Sub Procurement and Outsourcing, Sub Direct Compensation: Return for taking on risk. In the case of taking on correlated or systematic risk, the compensation is the risk premium, or excess return over cash that the investment offers. Constraints See Risk Constraints and Capital Constraints Risk Allocation Conviction (Conviction Assessment): Document Version 3 2 A measure of the degree of confidence we have in an active manager s investment skill. Also the Guardians approach to rating an active manager.

3 Term Definition Relevant Applicable to both public and private market managers. The conviction rating is a quantitative overall score based on the scores of a number of individual, largely qualitative, factors. Cost Centre Custodian The cost centres established by a Business Unit Manager and set out in the Annual Budget A person who is a custodian as that term is defined in the NZSA being a person appointed under section 63(1) to act as custodian of the Fund, or any part of the Fund Travel and Expenditure Internally Managed, Procurement Default proxy Delegated Financial Authority Direct Exposure Direct Direct Report The standardised proxy for a specific strategy. This is the proxy that we use when we introduce a private market investment into the portfolio in the absence of a view that we should deviate from the default proxy in order to better capture the risk of the investment. Management has the discretion to deviate from the default proxy, subject to IC approval. The authority of a delegate or sub delegate to expend Operating Expenditure or Capital Expenditure under the. Is an estimate of the exposure to the credit quality of a Counterparty as a result of a Direct Transaction Direct investment in assets (not being Approved Collective Vehicles governed by the Externally Managed or Financial Markets Transactions covered by the and ). An employee of the Guardians (other than the Chief Executive s Assistant and Head of Internal Audit).who Direct Document Version 3 3

4 Term Definition Relevant reports directly to the Chief Executive Direct Transaction Document Execution Form Due Diligence Costs EPRC Financial market transaction: Fixed income: Funding Model Gate: Is a Financial Market Transaction entered into for the purposes of The form that must be completed before any legal obligation is entered into. The costs that may be incurred in investigation into all aspects of a proposed investments. Due diligence covers such topics as manager conviction, risk and return, legal, tax, operations and finance. Employment and Remuneration Committee is a transaction governed by the Internally Managed Assets providing income to investors via a fixed regular payment.. Fixed income has duration and credit risks associated with it. A model that tracks the actual portfolio to the reference portfolio, agreed risk or capital constraints, and upcoming known exposures in relation to cash flows. The model is used to derive and agree rebalancing transaction decisions. A minimum level of integrity or commercial viability that a manger must demonstrate to be considered as a manager for the Fund. Gates include asset capacity, trust, alignment of interest, business viability and conflicts of interest. After passing through the gates a conviction analysis of the manager can be undertaken., Sub Risk Management Direct Internally Managed Risk Allocation Risk Allocation IMA Manager An investment manager to which the Document Version 3 4

5 Term Definition Relevant Guardians delegates powers and functions under an instrument of appointment, usually an investment management agreement. Must be appointed by the Board. Internal Incidents A failure of process or breach of policy which could result or has resulted in either: Risk Management Financial loss / gain > NZD$50k Reputation damage Internal Mandate (IIM): : Forum Manager The rules governing the management any active return sub strategy managed internally. An allocation of capital to a specific manager or activity. Could include an individual investment undertaken by the Fund s internal management under an Internal Mandate (IIM). In some cases also called a mandate. Internal discussion forum for all investment staff See Manager s Strategic Tilting Proposal Risk KTC or key terms and conditions: Legislative Risk Major Contract The proposal provided to the Committee upon which the Committee based its recommendation to proceed. See Risk These are the terms and conditions of appointment of a Custodian or IMA Manager that must be approved by the Board. See Risk. A contract with an annual value greater than $200k, or a lower value contract, Sub Risk Management, Externally Managed (Schedule 6) Risk Management Procurement and Outsourcing Document Version 3 5

6 Term Definition Relevant that his considered to be high risk. Manager (or Manager) IMA Managers and those who manage Collective Vehicles. It may also include a Manager Selection Adviser. Manager Selection Adviser Mandate or Master Checklist Master Custodian Material Minor Contract A third party who assists the Guardians to choose Managers and who the General Manager s determines is a Manager Selection Adviser See Is the document of record that summarises the non-investment due diligence for a new investment or when there are material changes to existing key terms. The Guardians global custodian which holds the majority of the Fund s assets and provides outsourced investment administration services. A matter or change is material if it has a more than trivial impact Materiality should be considered in light of the inherent nature of the matter, financial implications, impact on people, reversibility of a decision, reputation or public interest, whether the impact is positive or negative, uncertainty as to the impact, and the circumstances in which the matter occurs. If there is uncertainty as to whether a matter is material or not then it should be treated as material. A contract with an annual value of less than $200,000 which is also considered to be low risk., Sub Procurement. Externally Managed Direct s Procurement and Outsourcing All Policies Procurement and Outsourcing NAV Suggest define NAV in the policy Risk Allocation Document Version 3 6

7 Term Definition Relevant Non Master Custodian NZ Directive Portfolio Portfolio Agents (PCAs) Potential Future Exposure (PFE) Private Market Asset Class Product Proper Instruction A custodian that is not the Master Custodian and is often appointed to hold specific securities in the context of a particular mandate. A directive from the Minister of Finance dated 14 May 2009 which requires the Guardians to actively identify and consider investments in New Zealand, subject to meeting the responsibilities in section 58 of the New Zealand Superannuation and Retirement Income Act 2001 (prudent, commercial basis etc). The process of gaining access to the desired risk exposures, rebalancing the Fund, and managing liquidity risk in the most cost effective manner possible. Any investment activity that results in Financial Markets Transactions that are controlled directly by the Guardians A third party appointed to assist with the process such as a transition manager or foreign currency execution agent. Is a measure of exposure to a Counterparty. It is calculated by multiplying the effective notional principal amount of the derivatives by a percentage factor reflecting the Product specific volatility of the derivative. Those assets that are not public market investments Is an instrument used in a Financial Market Transaction Is an authorised instruction with respect to the Fund from the Guardians to the Custodian, an external manager or an Approved Counterparty for a Direct Transaction Direct s Portfolio and Internally Managed Securities Strategic Tilting Sub delegations PC6a and b Risk Management Public market public market investments comprise: Document Version 3 7

8 Term Definition Relevant 1) exchange listed securities or 2) Over the counter (OTC) financial contracts linked to listed securities and/or widely-followed indices or benchmarks. Generally, but not always, public market investments are liquid and generally have regular and transparent pricing. Public Market Equivalent (PME): Rating Rebalancing (Portfolio Rebalancing): Rebalancing Targets Pre- Tilting A combination of listed asset classes or benchmarks that best approximates the underlying market risks in a private investment. Our best estimate of how an investment loads onto the economic risk exposures implicit in listed assets. Not to be confused with the proxy. Does not need to sum to 100% of the value of the private investment. Also known as a credit rating. A classification of the credit risk of a borrower. Usually conducted by one of a small number of credit rating agencies (e.g. Moodys, Standard & Poors) A portfolio completion activity. The act of periodically buying and selling listed asset classes to ensure the actual portfolio is at, or at least moving towards, the rebalancing target portfolio. Rebalancing counteracts drift. The Guardians asset allocation process contains a mechanism to adjust target reference portfolio exposures depending on the actual market exposures held by the Fund at a given point in time. This mechanism uses specified proxies to adjust for an exposure to other investments not represented in the reference portfolio (as outlined in the Risk Allocation, section 9). The resulting target market exposures are referred to as rebalancing targets pretilting. Strategic Tilting Internally Managed and Portfolio Internally Managed and Portfolio Internally Managed and Portfolio, Sub Strategic Tilting Rebalancing target Document Version 3 8 The desired asset class positions in the portfolio after making proxy adjustments Internally Managed and Portfolio

9 Term Definition Relevant portfolio: Rebalancing Target Reference Portfolio: Risk: Risk Appetite Statement Risk Budget and after tilting positions. Abbreviated to target portfolio. The target portfolio is a revised benchmark used for periodically rebalancing the Fund. Differences between the asset class positions in the actual portfolio and the rebalancing target portfolio constitute drift. The Fund s overall target portfolio for rebalancing purposes is referred to as the Rebalancing Target and is the result of applying Strategic Tilting targets to the Rebalancing Target Pre-Tilting. A low cost, passively managed and well diversified portfolio of listed asset classes that is consistent with the Fund achieving its return objectives without undue risk, ie fit for purpose. Conceptually, the reference portfolio comprises a 100% cash position (NZD) plus a set of risk premiums or excess returns that also sum to 100%. The five major risks that could prevent achievement of the Guardians purpose: Strategic Risk Operational Risk Legislative and Regulatory Risk Risk Reputation Risk Defined further in Risk Management A statement that sets out the Board s tolerance to risk management and return and is schedule 2 of the Risk Management Risk Means the model used by the Guardians to estimate volatility of the Fund s returns and the contribution from the various strategies Risk Management Risk Management and Portfolio Risk Allocation Document Version 3 9

10 Term Definition Relevant RPMC Risk Constraints and Risk Limits Strategies: Risk and Portfolio Monitoring Committee The Risk Constraints and the Capital Constraints are the Risk Limits and set out in the Risk Allocation Schedule 7 and the Risk Appetite Statement. Abbreviation of value adding strategies or active strategies Risk Allocation Direct Internally Managed Risk Management Sub-strategy: value adding sub strategy Risk Allocation Target Hedge Ratio Tilt: Value adding strategies: Is a Rebalancing Target for the purposes of currency hedging. Temporarily adjusting (tilting) the Fund s market exposures in response to changes in expected returns. Board approved strategies that define the objectives and parameters for taking on active risk. Also referred to as active strategies or just strategies. We have 3 strategies: Strategic Tilting Active Returns The value adding strategies are set out in schedule 5 of the Risk Direct, Strategic Tilting Direct Allocation Internally Managed Document Version 3 10

11 Term Definition Relevant Allocation Value adding sub strategies Specific activity or exposure falling under a broader strategy The value adding sub strategies are set out in schedule 5 of the Risk Allocation. Direct Allocation Internally Managed Approved by the Chief Executive Officer 1 July 2011 Document Version 3 11