Professional Background and Information

This page provides convenient access to a range of frequently requested material I have produced, as well as other background information.  This is publicly available material primarily produced during the course of my roles at the New Zealand Treasury. 

Brian W McCulloch PhD, FCA.
Director, Commercial Transactions, New Zealand Treasury
brian.mcculloch@treasury.govt.nz

This index provides links to the detail in the page below.  It is in roughly chronological order, most recent at the top, but with some topics clumped together:

• Commercial Transactions
• Savings Working Group
• Treasury Financial Operations
• New Zealand Deposit Guarantee Scheme
• Irish Government's Green Paper on Pensions
• New Zealand Representation on APEC Committees
• KiwiSaver
• Building Successful Defined Contribution Systems in Uncertain Times
• Market Equity Risk Premium Paper Update
• World Bank Public Pension Fund Management Conferences
• State Sector Retirement Savings Scheme
• Expected Geometric Return and Portfolio Analysis
• New Zealand Superannuation Fund
• Public Sector Financial Management and Governance
• Academics
• Professional Accounting

Commercial Transactions

• IPO of Mighty River Power Limited: Mighty River Power is being prepared for an initial public offering of a minority of its shares following a decision by the Government that this company will be the first in its mixed ownership programme.

• Mixed Ownership of Crown Companies: The New Zealand Government has decided to extend the mixed ownership model to four state-owned energy companies and to reduce the Crown's majority shareholding in Air New Zealand. Mixed ownership means companies being partly owned by the Crown and partly owned by private investors.  This change is planned tp happen in a three to five year programme starting in 2012.  Treasury has undertaken preliminary work to prepare for extending mixed ownership to Mighty River Power, Meridian, Genesis Energy and Solid Energy, and reducing the Government’s majority stake in Air New Zealand. [Documents and Related Information]

• Crown Support Arrangement with AMI Insurance Limited: On 7 April 2011, the Government announced it would provide a back up financial support package for AMI Insurance Limited to give policyholders certainty and to ensure an orderly rebuild of Christchurch in the aftermath of the earthquakes. I acted as a Crown Observer of the board of AMI through the sale of its ongoing good business to IAG, with the claims arising from the earthquakes being separated out and managed by the Crown-owned company. [Media Release] [Background Documents]

Savings Working Group

• I led the secretariat for the Savings Working Group that was established by the New Zealand Government in August 2010:

  • to provide a point of reference for the government as it develops its medium-term savings strategies; and
  • to stimulate a public discussion on issues of national saving in the New Zealand economy, linking this discussion to investment and growth.

  The Savings Working Group's Final Report was produced in January 2011.

Treasury Financial Operations  -- New Zealand Export Credit Office, Retail Deposit Guarantee Scheme, Wholesale Funding Guarantee Facility

• I held the transitional role of Director -- Financial Operations in the New Zealand Treasury in 2009/10.  This included responsibility for the New Zealand Export Credit Office and the Deposit Guarantee Schemes (the Wholesale Funding Guarantee Facility and the Retail Deposit Guarantee Scheme).
• I was project leader for the implementation of the New Zealand Deposit Guarantee Scheme that was announced on October 12th, 2008.  This included the Retail Deposit Guarantee Scheme, covering retail deposits in New Zealand banks and non-bank deposit-taking institutions, as well as the Wholesale Funding Guarantee Facility. Details of the Scheme are at http://www.treasury.govt.nz/economy/guarantee.  I made a presentation on the Deposit Guarantee Scheme to the New Zealand Institute of Chartered Accountants Wellington Branch on March 18th, 2009. [Slides.]

Irish Government's Green Paper on Pensions

• The Irish Government concluded consultation on its Green Paper on Pensions with a conference on international experience on May 29th, 2008 in Dublin, Ireland.   I made a presentation on New Zealand Superannuation and KiwiSaver. [Slides.]

New Zealand Representation on APEC Committees

• I was the New Zealand Delegate at the APEC Economic Committee between 2007 and 2009. I also represented New Zealand at some meetings of the Investment Experts' Group, Competition Policy and Deregulation Group, and the Finance Ministers' Process, as well as involvement in workshops and panel discussions on a range of issues, including e-governance, government performance, results measurement, corporate governance, pensions & annuities, savings and capital market development.  Papers include:
  • Pension Fund Governance in New Zealand: New Zealand Superannuation Fund and KiwiSaver (APEC Pensions and Annuities Conference, Singapore, 2007)
  • Capital Market Reform in New Zealand (IEG Policy Dialogue on Deepening and Integrating Capital Markets, Melbourne, 2007). [Case study paper] [Presentation slides]
• APEC (Asia-Pacific Economic Cooperation) is an inter-governmental forum with 21 Member Economies from around the Pacific Rim: Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; and Viet Nam. They account for approximately 41% of the world's population, approximately 55% of world GDP and about 49% of world trade. APEC promotes closer economic relationships in the Asia-Pacific region to improve the business environment and raise the living standards of its members. The annual APEC Leaders' Meeting is supported by work by officials throughout the year on trade and investment liberalisation and structural reform.

KiwiSaver

• The KiwiSaver work-based savings initiative is part of a Government package designed to increase the level of savings by New Zealand households and support New Zealanders in retirement. See http://www.kiwisaver.govt.nz/
• I presented an overview of the KiwiSaver scheme for the Singapore Central Provident Fund Social Security Research Series in August 2006 [Download].

Building Successful Defined Contribution Systems in Uncertain Times

• The Singapore Central Provident Fund hosted an International Social Security Conference on Building Successful Defined Contribution Systems in Uncertain Times, July 14-15 2005, to mark its 50th anniversary.   This was an excellent conference covering a range of issues relevant to public pension funds, and to defined contribution systems in particular.   I presented a paper on "Investment Structures for Saving in New Zealand".   Other papers from the conference can be downloaded at the CPF website.
   

Market Equity Risk Premium Paper Update

• The updated version of The Market Equity Risk Premium (May 2005), co-authored with Dasha Leonova, is available.   Download it from here or from SSRN.   Here is the abstract:
   
       The New Zealand Superannuation Act 2001 requires the Treasury to state each year the required capital contribution of the New Zealand Government to the New Zealand Superannuation Fund. This paper examines a key assumption made in that calculation – the level of expected long-term premium of return on equity market investments over return on long-term government bonds.
       Over the past seventy-five years, US capital markets have provided an equity risk premium over long-term bonds in the region of 7%. The traditional view has been that these historical results provide an unbiased estimate of the expected future long-term equity risk premium.  This view has given way over the past few years to a consensus that the future expected risk premium is actually somewhat lower. This consensus rests on a range of recent empirical evidence and theoretical analysis. It draws on both the historical records of market returns, dividends and reported earnings, and on forward-looking information through surveys of market experts and from the expectations implicit in analysts’ earnings forecasts.
       On the basis of this analysis, we believe that the long-term annual (arithmetic) expected equity risk premium sits in the range of 3% to 5%. For the purpose of calculating the required capital contribution to the New Zealand Superannuation Fund, the Treasury is adopting the assumption of a long-term expected future equity risk premium of 4%.

World Bank Public Pension Fund Management Conferences

• I spoke on the governance of the New Zealand Superannuation Fund at the World Bank's 2nd Public Pension Fund Management Conference in May 2003.  A detailed paper, co-authored with Jane Frances,  describes the governance arrangements underlying the New Zealand Superannuation Fund.  This paper has since been reprinted as a chapter in:

   Musalem, AR and R J Palacios  Public Pension Fund Management: Governance, Accountability, and Investment Policies (2004, World Bank).

• I also prepared a paper on Designing an Independent Governance Structure for the 3rd Public Pension Fund Management Conference in September 2004.

State Sector Retirement Savings Scheme

• The State Sector Retirement Savings Scheme (SSRSS) is a defined contribution pension plan that was introduced for state sector employees in 2004.   See www.superscheme.govt.nz.  I was a member of the Advisory Board for the implementation of the  scheme, which is managed in the State Services Commission.
• Update:  With the implementation of KiwiSaver (see above), the SSRSS was closed to new members from April 1st, 2008.

Expected Geometric Return and Portfolio Analysis

• An article has been published in The Actuary that examines the problems with using expected geometric return in prospective portfolio analysis.

  McCulloch, Brian W. Expected Geometric Return and Portfolio Analysis. The Actuary (March 2004) pp. 30-31.   [Download]

• The following working paper has been released in the Treasury Working Paper Series:

McCulloch, Brian W., "Geometric Return and Portfolio Analysis" (December, 2003). New Zealand Treasury Working Paper 03-28. [Download]

Portfolio performance depends crucially on the behaviour of returns on the assets held in the portfolio. However, there is some misunderstanding in practice about the econometric relationships involved. In particular, the distinction between annual (arithmetic) returns and compound (geometric) returns is not well understood, both in respect of individual asset classes and in respect of portfolios.  This working paper addresses these issues in the context of the financial projections and capital contribution calculations for the New Zealand Superannuation Fund.

New Zealand Superannuation Fund

• I led the policy development for the establishment of the New Zealand Superannuation Fund.  This is an investment Fund (aka Sovereign Wealth Fund) owned by the New Zealand Government to help build up financial assets and strengthen the Crown's balance sheet to meet future requirements.   It is administered by an independent board and is expected to build up a diversified portfolio invested across world capital markets.  General information about the New Zealand Superannuation Fund can be found at  www.nzsuperfund.co.nz.   I have made several presentations of this policy, including at the Mercer Global Investment Forum,  the Victoria International Applied Finance program, the Master of Public Management program at Victoria University of Wellington, and at the World Bank (see above).
• Financing New Zealand Superannuation is a paper I co-authored with Jane Frances for the Treasury Working Paper Series.   It addresses the financial issues surrounding calculation of the contributions the Government is required to make to the Fund.
•  Long-Term Market Return Assumptions for the 2002 December Economic and Fiscal Update is a paper I prepared to support the calculation of forecasts of the required annual contribution to the Fund for the 2002 December Economic and Fiscal Update published by the Treasury.
• New Zealand is not the only country seeking to strengthen the public balance sheet through building up a portfolio of financial assets.   A review of the Irish National Pensions Reserve Fund that I co-authored with Jane Frances was published in The Actuary (May 2001).

Public Sector Financial Management and Governance

• In the late 1980s and early 1990s, I was involved in the implementation of financial management reforms in the New Zealand public sector, originally through  two major international consulting firms and subsequently with the New Zealand Treasury.  Representative publications include:

McCulloch, B. W.  New Zealand Leads in Government Management Reform.  Government Accountants Journal (US), Spring 1993.

McCulloch, B. W.  Accounting and Management Reform in New Zealand Government.  Administrative and Managerial Reform in Government: A Commonwealth Portfolio of Current Good Practice, Commonwealth Secretariat, April 1993.

McCulloch, B. W. and Ball, I.  Accounting in the Context of Public Sector Management Reform.   Financial Accountability & Management, 8(1), Spring 1992.

McCulloch, B. W.  A Capital Charge for Government Departments.  Accountants' Journal (NZ), October 1991.

McCulloch, B. W.  Critical Success Factors for Public Sector Financial Management. Accountants' Journal (NZ), March 1989.

•  In the late 1990s, I was manager of the Crown Financial Policy section in the New Zealand Treasury.   I oversaw the introduction of Modern Portfolio Theory to analysis of the New Zealand Government's overall portfolio of assets and liabilities.   I was also responsible for the Treasury's roles in relation to the Earthquake Commission , Government Superannuation Fund, Public Trust Office, and the  National Provident Fund.
   
• During 2000 and 2001, I led the preparation of the Public Audit Act 2001, which established the Controller and Auditor-General as an officer of Parliament, and reformed the law relating to the audit of public sector organizations.

Academics

• My PhD dissertation at the University of Washington (Foster School of Business) was on earnings management. [Check my credentials here.]   My main focus was accounting and finance, along with econometrics and microeconomics.  Papers included:

  Black, Ervin L. and McCulloch, Brian W., "Earnings Management Relations of Accruals Components: A Multi-Period Setting" (December 4, 2003). http://ssrn.com/abstract=476164

• I also graduated with a first class honours degree in accounting and info science from Victoria University of Wellington, Faculty of Commerce and Administration.
• I am a member of the Beta Gamma Sigma honor society.

Professional Accounting

• I am a Fellow Chartered Accountant (FCA) and I have been involved with the affairs of the New Zealand Institute of Chartered Accountants in various capacities over the years, locally (Wellington Branch Committee & Treasurer), nationally (Professional Conduct Committee, Financial Reporting Committee, etc.) and internationally (IFAC-PSC Technical Advisor).
• I was awarded the Peter Barr Research Fellowship by the New Zealand Institute of Chartered Accountants in 1986.
• I co-authored, with Garry Fissenden, a Research Bulletin (R-118, The Realisation Concept: Its Relevance to Income Determination, 1987)  published by the (then) New Zealand Society of Accountants.
• I served as a member of the Professional Conduct Committee of the Institute from 2001 to 2010.  This is a disciplinary committee established in legislation to investigate complaints against Chartered Accountants for failure to observe the Institute's Rules and Code of Ethics, and to prosecute offending members at the Disciplinary Tribunal.
• Before joining the New Zealand Treasury, I worked with Touche Ross & Co (a predecessor firm of Deloitte), Price Waterhouse Management Consultants (a predecessor firm of PricewaterhouseCoopers), and Victoria University of Wellington School of Accountancy and Commercial Law.
• I am a member of the Institute of Directors in New Zealand.