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.