Super Fund warns Nats on campaign policy folly

The New Zealand Super Fund has delivered a thinly veiled warning to the National Party about the dangers of introducing a mandated level of New Zealand-based investment.

The $12 billion fund’s confidential briefing to incoming Finance Minister Bill English was made public yesterday.

It contains several guarded references to Prime Minister John Key’s campaign trail promise that National would introduce legislation forcing the fund to invest 40% of its cash into New Zealand businesses.

Other commentators have made many criticisms of the policy, notably:

- the Super Fund was designed to operate free from political interference like this
- by decreasing diversification, it increases risk
- New Zealand does not have enough suitable investment opportunities to cater for that much of the fund’s increasing cash kitty, which the government tops up by $2 billion a year.

According to the Super Fund’s briefing, this last issue is becoming a problem already.

“As the fund has grown we have come up against the limits of the New Zealand capital markets. We observe this in a number of ways.

Examples include the greater impact on market prices we are having (due to our large size in relation to the market) when we transact in the debt and equity markets.

In some asset classes, for example infrastructure and bonds, there is a real paucity of opportunities suitable for a fund of our (current and projected) size,” the briefing says.

“We are conscious of your stated policy of wanting to see the Fund invest a greater proportion of its assets within New Zealand.

We would be eager to enter into a dialogue with you and the Treasury about the purposes for, and practicalities of, that policy,” it continues.

The Super Fund also points out that its relative organisational efficiency, compared to other super funds with hundreds of employees, could be threatened if the policy is introduced.

“A greater focus on New Zealand assets would possibly require more staff due to limited depth of external talent and greater conflicts of interest issues associated with investing in the local market.”

A large section of the briefing is devoted to how the Super Fund stacks up against other sovereign wealth funds, with its operational independence being cited as a reason for its first-place position in a survey by the Peterson Institute for International Economics.

Political meddling in the fund’s asset allocations would see it slide down the rankings.

The Super Fund also confesses to being sick of the beating it has taken in the media over its investment losses in the volatile times of late.

“Transparency, while earning us the kudos of our peers and independent reviewers, occasionally creates a rod for our own backs.

An example of this would be our decision to publish the monthly returns for the fund. That is almost unprecedented amongst our peer funds and potentially creates somewhat of a distraction given the long term nature of the fund,” the briefing says.

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17 Comments & Questions

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Don't back down John

This lot obviously think they are God's gift(they aren't)and it will do no harm to invest in NZ

We are continually hearing about how hard it is going to get to obtain funding for banks in this country. Here's a likely source for a start.

And then we can start on the government borrowing plans for all this infrastructure - who better to pay interest to than the NZ taxpayer?

Are they saying NZ is a bad place to invest?

As for their 'first place internationally' it probably comes as a result of the huge exchange rate drop rather than any extraordinary ability on their part.

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Dump the lot of them ,they still think the weasel words Cullen is still driving the country into bankruptcy,not forgetting the way things are ,use the remaining money before there is nothing left.At last count it had lost approx.5 BILLION DOLLARS.

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TOM 'n Jones comments place them well left of the Labour Party.

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Hands off, if you don't mind. A tough enough job without constantly trying to 2nd guess whatever dozy pollie we're dumb enough to elect. And who will be the next one, after JK, and after that. Let's make it clear as crystal the fund belongs to the investors, not whoever comes along playing their violin. This is long term stuff, don't you know?

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Let's not forget that if the super fund wasn't in place most of this money would be invested or spent locally anyway or did the $12b come out of thin air?

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The fact that National would introduce legislation forcing the fund to invest 40% of its cash into New Zealand businesses will be a good idea. With the shortage of foreign funds to NZ, this money will obviously improve our cash flow.

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Why should NZ borrow to invest in overseas infrastructure and not our own? This is essentially what happens when the Government is running a deficit as the $2b contributions would be borrowed, yet NZSF invests in overseas infrastructure....I agree with the comments about political interference to a degree, however this is NZers money and we do have a large number of projects that could do with funding!

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Sorry I had to read the article again – the Super fund “warns” Gvmt, these lily wankers who think they are investment experts warns the people who own them – boy there is something to be said for dictatorships…
Now let’s look at their contribution – these so called experts to NZ – well a huge loss… gee and we are meant to think they are good…. Ok so the rest of their kind in the world have done the same thing – what does this tell us of their kind… not much expertise if you ask me just sheep like tactics like most so called experts in this field…
What their “informed” view to Gvmt tells us – us simple people that is, it reads – bugger off unless you want many tens of millions of dollars, were to Big to deal with the likes of you… Arrogance!
Hells teeth, just who do these people think they are, NZ companies in the 1 to 5 million bracket are crying out for capitol, these guys are our only hope, banks wouldn’t have a clue and VC companies in NZ should be relabelled vampires,. It’s not the big boys who need it, after all F&P or anyone else of their size isn’t going double there turnover and return to NZ are they.
The super fund CEO needs to be fired – the sooner the better and also his top advisors, no doubt more “money” people who only do “big” jobs (read make big money from the fund), lets carve this fund up into small bits and use to support smart but small NZ companies.
I bet that it will return more long term than any investment these so called experts can make.
Time for a reality check –yep we had it and they lost, like Chairman Helens lot these guys must be replaced with people who actually want to help grow NZ, after all if we can have ACC making very strange local investment in area’s they have no right to then why can we not have the proper fund do it
Ah shucks I forgot its below them and they are so smart that they only lost billions…

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Norm, it's not the Government"s money, it's the investor's. Got that?It's got to be insulated from the inevitable knee-jerk stuff that we are currently seeing. You say "time for a reality check". I agree. It's always that time.

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Some simple facts, the Super fund has returned 3.97% annual growth since its inception compared to the risk free rate of 6.97% for the same period. In simple terms these guys have destroyed value! What that means is we could have employed monkeys and instructed them to solely invest govt bonds and they would have outperformed these overpaid, over-rated and so called investment experts.

As for their lame comment that we do not have the depth of talent in NZ to manage large investment funds, I am tempted to agree because they are ample evidence of this. However this situation will not change when we do not invest in developing our own talent within NZ.

Hold on to invest in NZ they would need more staff, gee that actually sounds like a good idea. Have a look at the share portfolio of the Super Fund and they are paying a hell of a lot of wages for offshore investment advisors.

The economic issues NZ faces at the moment are not simply as product of the credit crunch, the credit crunch brought it into focus sharply. NQuality NZ businesses are now finding it difficult to access debt and equity markets because we no longer have an open tap to foreign funds.

I agree that political interference is not ideal, but step back and observe that the "market" has failed and govts all around the world are stepping in to sure up their banking and business sectors. All we are seeing here is a directive to hold a min 40% of the invested funds in NZ. NZ Super Fund grow up and get on with it and if you cannot move aside there are a team of monkey's at wgtn zoo ready to take your place.

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Since inception the annual return achieved by the super fund has been 3.97%. The risk free return for the same period was 6.89%, time for a reality check these guys running the fund have destroyed significant "investors" funds.

Quality NZ businesses are suffering from debt and equity markets drying up because the open tap of foreign funds has been turned off. Wake up super fund you're not actually that good and the funds would be better used in NZ.

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The sole purpose of the fund which is currently free from political interference is to maximise the return for those New Zealanders who will benefit from the income and growth in future years.
Most of the foregoing comments are made by people who are blinded by the election win and the assumption that Key is always right syndrome.
The Super fund was set up and based on sound principles.
Forget your political thinking and look forward to what is best for all.

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a polly sees the birdseed bowl is full and thinks its his to eat.hands off key,muldoom destroyed one super fund now you want to destroy another.dickhead.

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Labour sycophants are re-emerging out of the gutter,on the super question ,just like they let the economy burn because they knew best.Well JK KNOWS BETTER SO ALL YOU LOSERS GET BACK IN THE GUTTER.

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While the Government's position of interfering does seem a bit worrisome (in principle) it does seem a bit odd to pay for the Super Fund with foreign borrowing and then for them to defend their position about investing abroad. If Super isn't willing to invest in NZ, perhaps the solution is for the Government to withdrawal this year's, and maybe next year's, payments and save $4bn in foreign borrowing. While this might not be popular with the Super boys, it would alleviate political interference and they could prove just how effective they are without extra cash injections. While not a perfect solution, it would certainly eliminate the short-term issue and the Government could restore payments in a 1 - 3 year time frame.

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Ah it does seem that this brings out the worse in politics… People I am sure you see it as a National v Labour ideology problem, its not. Let’s be clear Nanny state under Chairman Helens dictatorship was very clearly thrown out by the People, Key didn’t win, labour lost. Everyone is giving Key a chance to prove his party is up to it – the same they gave Chairman Helen when she first took over the reins, so lets stop beating ourselves up over this – the world and NZ has turned.
Now as to the fund Alan is correct when he states that it’s the Investors fund, unfortunately the “investor” has no control over his or her fund instead some nameless over paid Wellington seat warmer has, the same type of people we have had making blunderous decisions for NZ for the last 9 years. If Investors could control it we wouldn’t be having this discussion.
Fact – SME business need access to capitol. Fact the current system – banks and VC have failed (VC never worked as they invariably waited for the company to fail before buying in or caused them to fail as they actually have no expertise in running anything) Fact most NZ ‘ers want NZ money invested in NZ for the good of NZ.
Now we are told this is High Risk? What Investing in ones self is now high risk… gee I guess that means we should shut down all the schools as the investment experts must be right there is no point in investing in NZ as we are obviously a basket case….
Let’s get this clear, the pitiful amount of money that NZTE has to use to fund exporting companies and these are the main ones we should be focusing on makes NZ a laughing stock around other countries Gvmts. The Europeans shower there exporters with huge amounts of money, not like NZ who actually make them pay for everything themselves… lets now use this pool of capitol and invest it in NZ SME as I said before the return to the Investor AND NZ will be far greater than anyone of those useless seat warmers can do and the good part is that we don’t need a whole lot of new seat warmers to administer this – mechanisms to deal with this are already in place.
So let’s stop this Labour v national debate and start putting pressure on the Gvmt and the Super fund to do THE RIGHT THING by NZ.

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Norm has made some good points. I hold no brief for National or Labour, but do worry that both have a strong streak of "populism" that will mitigate against best long term practice, particularly where juicy short term gains can be made by dropping long term well thought out effort. It's been an unhappy scene on the super front for decades, & it is pitiful that just when progress seems to have been initiated, along comes another short-sighted spoiling action. JK ain't an investor, & Bill English may have an anti-Labour mindset that blinds him a bit, much as I think they could be good men. The thing is, the fund's purpose is not to bail out anyone except future pensioners, & that is the No. 1 priority. There are a million other priorities that could be forced on it, but they must be resisted.
Incidentally, the return ain't that bad. Danny made a claim that a "risk free" investment strategy would have returned 6.97% (where?) but my take on it is a this fund that invests for all likely scenarios on a long time scale, & if this is done, this will be more advantageous. It's no good looking in the rear vision mirror & picking out what would have been the best policy to match what actually transpired over a short time frame. Danny's strategy could have been woeful if any of several different scenarios had actually transpired, but the Super fund may well have still got a reasonable return in any case. Yearly returns at this early stage don't mean all that much anyway, it's the last few years that carry the killer punch.

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