Super chief unfazed by volatility

By KRIS HALL - The Dominion Post | Friday, 19 September 2008

Institutional collapses and plunging markets will add value to the New Zealand Superannuation Fund despite the dire losses facing share-based funds, says chief executive Adrian Orr.

The $14.7 billion fund, the country's single biggest, has returned average growth of 16 per cent since 2004, but shows a 1 per cent loss to date this year.

According to analysts, no share- based fund is likely to survive current market volatility unscathed, meaning the NZ Super, or "Cullen" Fund, could report heavier losses when it delivers its annual result at the end of the month.

"New Zealand Super is designed to both weather such volatility and benefit from it," Mr Orr said. "As a long-term investor, we have deliberately invested in a wide range of global stocks and bonds, as well as other assets, to ensure we achieve our goal.

"As with any financial institution, short-term volatility in share prices feeds directly into the market value of the fund. These are daily valuations, and do not reflect any realised gains or losses."

The Super Fund accumulates and invests government contributions to offset the New Zealand superannuation scheme. It is governed by the Guardians of New Zealand Superannuation, an autonomous crown entity set up by statute.

Investments began in 2003 with $2.4 billion. This is expected to grow to around $109 billion by 2025, making it one of the largest funds in New Zealand and Australia.

In December, it was 48 per cent invested in sharemarkets, with the remainder made up of private markets (20 per cent), property (10 per cent), fixed interest (17 per cent) and commodities (5 per cent).

Among its direct equity and bond holdings are a $22.7 million investment in Merrill Lynch, $13.6 million in Lehman Brothers, $9.6 million in AIG and $24 million in Morgan Stanley, which is considering merger options.

A further $26 million is invested in struggling Macquarie Group, the price of which plummeted 20 per cent yesterday. A further $19 million can be found in Goldman Sachs, whose shares fell 14 per cent yesterday, and more than $21 million in failed mortgage houses Freddie Mac and Fannie Mae.

Analysts, however, downplayed the numbers, saying the fund was designed as long-term and that no government was expected to draw from the fund till 2025 at the earliest.

Fisher Funds portfolio manager Frank Jasper said: "It's like what [American investor] Warren Buffet said, that when the sharemarket falls, if you are still saving money, you should celebrate, not panic.

"You can buy more shares at more reasonable prices. If you are holding for a long time, you should celebrate falling prices."

Deputy Prime Minister Michael Cullen told BusinessDay that New Zealand Super held shares in global equities which were fully expected to have volatile returns within short-term periods.