Govt investment units shed $2.1b in global share slump

The New Zealand government's funds under management shrank by $2.1 billion in the third quarter of last year when slumping international equity markets sapped returns from the Crown Financial Institutions (CFIs).

The government's return from the investment units was minus 4.7 per cent in the three months ended September 30, short of the 1.5 per cent growth objective, though better than the minus 4.9 per cent passive benchmark it targets, according to the Crown Ownership Monitoring Unit's quarterly report published on its website today.

Total funds under management fell to $41.02 billion from $43.99 billion in a period when stocks around the world plunged as US policymakers struggled to extend its Federal government debt ceiling and America's credit rating was downgraded by Standard & Poor's.

The New Zealand Superannuation Fund and Accident Compensation Corp's investment unit made up 82 per cent of the total portfolio at the end of the quarter, down from 94 per cent at the end of June. That doesn't include another $1.89 billion of funds managed by the National Provident Fund which isn't included in the government's balance sheet.

A rebalancing of the Super Fund's assets into growth investments such as international stocks "helped the Crown to recapture some of the value lost during the crisis (in 2008)," the report said. Still, that exposes "the CFI portfolio to short-term market volatility."

ACC bucked the trend, returning 0.8 per cent in the quarter after outperforming in Australian and global equities. Funds under management closed at $17.2 billion as at Sept. 30 from $16.6 billion. Since its inception in 2001, the fund has made annual returns of 9 per cent, beating its 7.9 per cent target.

The CFIs aggregate return over the past five years was an annual 4 per cent, short of the 7.2 per cent target, but beating the 3.3 per cent passive benchmark it watches. Funds under management have increased by $7.68 billion over the past five years.

The Earthquake Commission continued to sell assets in the quarter, as "claims arising from the Christchurch earthquakes are processed."

The NZ Super Fund's valued shed 11 per cent in the quarter, and today reported its funds under management declined 0.5 per cent in November due to "falling equity markets."

The fund has lost some 5.7 per cent in value so far in the latest financial year after weaker global stock markets coincided with an increased exposure to international equities.