Super fund shock for market

By PAUL PANCKHURST

The investment policy for the multi-billion dollar New Zealand Superannuation Fund was prematurely revealed yesterday by a website slip-up.

The "Cullen fund" asset allocation deflated the sharemarket's hopes by putting only 7.5 per cent into New Zealand shares.

News agency Reuters said reporters went looking after learning a website was under development and found the details on www.nzsuperfund.co.nz

After the news broke, a new message went up: "You are not authorised to view this page."

Asked about the numbers, fund chief executive Paul Costello told Reuters: "I can't confirm whether they are correct or incorrect."

The fund's policy will be officially announced today.

Sources told the Business Herald that the website document, although a draft, gave an accurate picture.

The fund is being set up to cope with a pension bulge as "babyboomers" - people born after World War II - become eligible for national superannuation.

The website document says 67 per cent of the fund will go into shares.

About $330 million would go into the New Zealand stock exchange in the first year.

A quick calculation - done in every brokerage in the country - showed the local market was getting 7.5 per cent against 59.5 per cent for overseas markets.

Twenty per cent of the fund is split equally between NZ and overseas fixed-interest investments.

Six per cent goes into property in New Zealand and overseas, and 7 per cent into an "other" category that includes private equity, infrastructure and commodities.

The website said the small size of the local sharemarket was a barrier to larger investment.

The exchange's free float - shares not locked up in untraded blocks - was valued at $35 billion.

The fund was expected to reach $25 billion by 2020, and its "sheer size" could lead to problems if too large a chunk went to the local market.

One factor is legislation banning the fund from taking a controlling stake in an entity.

The website added: "Longer term, the fund may invest more money in New Zealand shares if the NZX experiences strong growth."

The allocation is a blow to the New Zealand exchange.

Chief executive Mark Weldon argued for 30 per cent, and the public service pension fund, the Government Superannuation Fund, opts for 15 per cent, as do most local fund managers.

At sharebroking firm JBWere, strategist Campbell Millar said the allocation was "probably half what most people were expecting".

Going on the bare bones available, he believed the allocation mix was a sound investment strategy to achieve diversification and growth.

Overseas shares were a larger part of the mix than many would have expected, and New Zealand fixed-interest investments such as Government bonds raised the prospect of a circular arrangement - the Government borrowing money from a Government fund.

Millar, who has written research papers on the likely impact of the fund, said he had thought more money might have been invested in New Zealand through the "other" category that includes infrastructure investments.

Explaining the emphasis on overseas shares, the website said the fund was "focused on long-term growth, and returns from equities over the long term have been consistently higher than returns from any other investment".

All up, the website said, 22 per cent of the fund's money - close to $1 billion in the first year - would be invested in New Zealand.