Cullen fund picked to skew NZ market

By MARK FRYER

The Government's big new superannuation fund will have to be creative about the way it invests in local equities, says a broker who has analysed the fund's potential impact on the market.

Campbell Millar, New Zealand strategist with broker JBWere, says the fund could soon dominate the market if it confines its New Zealand equity investments to listed company shares.

Speaking on Friday at the Fundsource professional investment conference, Millar said he believed the fund would put about 15 per cent of its money into local equities.

The fund, popularly known as the "Cullen Fund", is meant to help taxpayers bear the rising cost of superannuation as the population ages.

It has yet to decide how it will allocate its investments, but Millar said 15 per cent for New Zealand equities was a reasonable proposition.

That would match what local fund managers put into New Zealand shares. The separate Government Superannuation Fund last week lifted its allocation to New Zealand shares to 15 per cent.

If that figure was right, he said, the Cullen Fund would initially be putting about $300 million a year into the local market, and that amount would grow sharply if it reinvested dividends.

At $300 million, the fund's investments each year would represent about 0.7 per cent of the total market capitalisation, or about 1.3 per cent of the free float - the shares that are readily available to buy.

"That's actually a huge amount", said Millar.

Putting 15 per cent of the fund's money into New Zealand shares "is simply something that can't be done as the market is today".

In a decade the fund's investments would be as large as the shareholdings of all local fund managers combined.

If it follows the new NZSE50 index, in which Telecom has a 27 per cent weighting, "4 per cent of our entire retirement fund will be bet on Telecom".

One answer, said Millar, would be for the fund to look beyond the market and invest in unlisted companies. For example, it could invest in Fonterra, or infrastructure projects.

A complication is that the fund cannot take control of any entity.

"It's got to be good [for the market] but I don't think it's going to be quite the bonanza that some of us thought it was going to be," said Millar

"The biggest impact will not be the sharemarket, it's going to be the unlisted area."