Super fund only due to start investing late next year

The New Zealand Superannuation Fund, with already over a billion dollars to invest, won't start investing until the September 2003 quarter at the earliest, chairman of the guardians David May said today.

The fund has had a narrow escape with overseas market in disarray in the September quarter and in the last year.

While Treasury's Debt Management Office has been getting a 5.75 per cent, tax-free return for the fund, the average return for super funds monitored by Mercer Investment Consulting was a miserable minus 4.8 per cent in the September quarter and minus 6.9 per cent for the year.

Had the fund been similarly invested, it would have seen $75 million go down the gurgler.

By the time it is ready to invest, the fund will have built to over $2 billion and by 2030 the fund is expected to have build up to around $58 billion in today's dollars -- or the equivalent of half of Gross Domestic Product.

Treasury projects have suggested a 9 per cent rate of return for the fund, but the guardians have to yet to decide if that figure is appropriate.

Mercer's figures showed that over the last five years the best return was by Tower Asset Management which achieved 5.7 per cent per annum and the average was 3.8 per cent.

At a briefing today, Mr May emphasised the long-term nature of the fund, saying year-to-year fluctuations were inevitable.

"Short-term fluctuations need to be kept in perspective. The guardians' performance needs to be measured over the long-term," he said.

Guardian Michaela Anderson, director of policy and research for the Association of Superannuation Funds in Australia, said she was not aware of adverse public reaction to negative returns in Australia where superannuation is compulsory.

"Somewhat surprisingly, people seem to understand it a market issue, not a fund manager issue," she said.

The guardians' board, set up just over two months ago, has yet to appoint investment managers although it has received expressions of interest from around 20.

The board is also considering the key issue of strategic asset allocation and investment policies. It expects to appoint a chief executive of the guardians early next year.

If the fund conformed to fund manager now in New Zealand, it would put 17 per cent of funds into the New Zealand sharemarket, meaning some $340 million of a $2 billion fund would be invested.

The guardians are required to invest the fund on prudent and commercial basis consistent with best practice portfolio management, maximising returns without undue risk to the fund as a whole.

One of the issues the board must grapple with is establish an ethical policy and how that should be applied to investing.

The board has yet to decide what proportion of funds will be invested in New Zealand and other issues such as what sort of hedging policies will be operated for foreign investments.

Mr May said the board was at pains to establish correct governance practices and wanted it to be above any criticism in that respect.

Any defence of the appropriateness of the fund itself will be left to politicians.

- NZPA