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Guardians defend their allocation

Friday 15th August 2003

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The Guardians of the New Zealand Superannuation Fund have defended their decision to have just 7.5% of its funds invested in the local sharemarket and to invest in Government bonds.

While people like New Zealand Exchange chief executive Mark Weldon have argued that the fund should have 30% of its money in the local sharemarket, chairman of the Guardians board says that is not feasible as the market isn’t big enough.

Weldon said that the allocation to New Zealand shares was “infinitesimal” and that he was more than a bit disappointed with the decision.

Chairman of the Guardians board, David May, says a huge amount of research went into how much money the fund could invest in the New Zealand sharemarket.

He says one of the Guardians had to be careful they did not become the “market maker”, that is move the market because of the size of its trades.

Research indicates that active managers are constrained to between 1.5% and 2.5% of market capitalisation. He says that actual number depends on factors such as how active the manager is.

However, he did offer a carrot to the exchange. May told a briefing yesterday that if the New Zealand market grew in size there is the possibility that a greater allocation could be made to this sector.

May said the fund will outsource its funds management to local managers, as opposed to establishing its own funds management team.

Some people consider it inappropriate for the fund to invest in Government bonds, as it is essentially lending money back to the Government which it has raised in taxes, The NZ Super Fund’s nearest equivalent, the Irish Pension Fund, is barred from investing in Government Stock issued by its government.

May says there is no such ban on the NZ fund. Those circular issues are not ones for the Guardians, rather their role is to determine what is best for the fund.

He says it would be inappropriate for the fund to be invested totally in growth assets, hence 20% of its allocation was going into income assets and these would be split evenly between international and local bonds.

He says the manager which looks after this part of the portfolio maybe able to invest in corporate bonds also.

In 2023 it is estimated that the fund will have about $10.1 billion invested in Government Stock.

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