Think tank urges state fund to invest in business

Long-term threats to New Zealand’s supply of credit to business have prompted suggestions of tapping the locked-up wealth of state-owned enterprises and the creation of a sovereign wealth fund.

They come from a business think tank, the New Zealand Institute, in two new reports of the effect of the global recession and credit squeeze on the economy,

The papers, by the institute’s new research director, Benedickte Jensen, outline three options:

• Leveraging individual SOE balance sheets through cash withdrawals that could then be used for strategic investments. If no new sources of SOE financing are drawn on, this would entail trade-offs with lower funding for existing SOE investment plans. Alternatively, SOEs could raise new debt financing or the government could use partial listings to attract new equity finance.

• Encourage the New Zealand Superannuation Fund to invest more actively in New Zealand companies.The would require some changes in governance at the fund but investment decisions would need to be consistent with the fund’s mandate.

• The creation of a sovereign wealth fund (the New Zealand Growth Fund) to leverage the government balance sheet and invest strategically in New Zealand companies. It would be modeled on those used by nations such as Singapore to successfully invest in growth companies. Initially, the fund would own the majority of the SOEs (probably about $14 billion) and would be a fully commercial operation, actively managing the SOEs in its portfolio for growth.

The institute believes the long-term lending markets for NewZealand banks do not provide anything like the degree of funding they did in the past.

“We don’t know exactly what probability to attach to this scenario. However, it is prudent to manage this risk, as the impact would be severe if it eventuated,” it says.

The institute estimates that around $63 billion in bank funding is due to mature at some time in 2009, with a large proportion coming due over the next three months. Around half of that funding is sourced from Australia and this may mitigate the risk.

However, Australia’s access to funding is not completely assured at this time either, the institute says.

“Short term funding raised by the banks since October has come at a high cost. Successful raising of long term debt is likely to come at a high cost as well. This may cause banks to question the profitability of new lending.”

Read the full reports:

The Emperor Has No Clothes: New Zealand's vulnerability in the face of the global economic and financial crisis

• Heavy Mountain Weather: Funding risks for New Zealand and proposed solutions

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Utter and complete bonkers

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Well put, what does the Govt know about picking companies. KiwiRail (thanks to Labour) and others.

Govt is there to set policy, determine what policy would encourage businesses to setup (and stay) in NZ. For one we have a clean banking system, we could tilt the playing field. More companies paying less tax each would provide a good start. Our high company tax is one of the most significant hurdles to new businesses either coming to NZ, or growing in NZ.

State funds and the managers of those funds need to focus on long term returns. That means a diversified portfolio and not focused on NZ.

When NZ is in surplus, and there is some money to invest then Sovereign Wealth Funds may be appropriate.

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Who out there considers that this recession is being talked into existence, or should I say talked up in its magnitude.

I am not talking about perception of reality by reality coming out of perception.

There is surely a big lump for a whole lot of people who have taken a ride on debt and dream world house values ....but
I suspect if we talk recession enough we will make it a self fulfilling prophecy.

Every time someone stops that spending cycle by putting cash under their mattress for the much talked about rainy day they bring that rainy day closer and turn a shower into a storm.

I suspect that this may be a time when our ignorance may actually result in the most bliss??

Is our greatest enemy at the moment the media dramatisation of everything where more often than not the head line was the most amazing and shocking and misleading content in most news articles?

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I agree with ex Kiwi Chick. I run a service engineering business in Canterbury. Some of our major customers are quieter than normal, most have noticed a slight decline, but some are currently experiencing record workloads. I realise it could worsen near mid year, but at present the picture certainly isn't one of overall economic despair as is being painted by the media.

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Does anyone else out their think that the recession is being talked up in magnitude such that the very talk is making it a much graver reality.
I think the media and its irresistible urge to blow any and every thing out of all proportion will be one of the most dangerous things for our economic conditions getting worse.
That hand in hand with those who start way in advance protecting against the storm putting money under their mattresses to weather it out.

Everyone stopping spending in advance in unison is going to be a huge factor in what may be a self fulfilling prophecy at its very best.

We can:t stop the money cycle in a just makes it all come true!

We should as a nation/world be having a spend-athon and print use by dates on money and if we did you may be suprised by how a recession may be a light sun shower rather than a largely self generated perfect storm.

Ignorance indeed may have resulted in our greatest bliss world wide. With each home owner going bust seeing it as an individual consequence of their foolish actions paying rediculous prices for houses and learning from it rather than the fault of economic conditions.
The obscene companies that screwed up will go bust and a responsible person that has been held back in the market due to the formers un natural against financial sense behaviour will have a chance to appropriately as reward for their prudence buy them up at an appropriately cheap price.

We help nothing by giving protection to foolish financial behaviour we just underwrite it promote it and guarantee its recurrence sooner rather than later by the same people who were helped out.

We will also gain nothing from turning what should be some good healthy market feed back hurting bad behaving greedy sods by turning a change of fortunes into a media spectacular and treating it like an act of God. We are talking up the real damage from all this and redirecting the damage on to common citizens and workers by inspiring every one to stop spending and lining up all the governments to give bail outs to the institutions that should break.

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Posted again as first post didn't come up till now sorry :-)

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