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Super fund goes alternative

Rob Hosking

Wednesday 23rd March 2005

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In a major shift in investment strategy the Guardians now aim to have 35% of its assets in alternative assets by 2007.

Those asset classes include infrastructure, private equity, property, forestry, commodities and absolute return strategies such as hedge funds.

This will be achieved by reducing the proportion of investment in global equities – down from the currently 42.5% of the fund to 34.5%.

Of those, about 25% are US equities and this proportion will reduce to about 17%, says May.

Then private equity component will be focussed on the New Zealand market, he says.

“The New Zealand market is relatively attractive. There’s a ‘flavour of the month’ aspect to some overseas private equity markets – its getting a bit overheated.”

The change will diversify the risk of the fund as well as boost probable returns.

The fund’s modelling shows the probability of meeting its target – the risk free rate plus 2.5% a year – increases from 72% to 75%, says May.

The Guardians wanted to move into alternative asset classes some time ago but were denied the funding to research that part of the market until the review of the fund’s performance was completed last year.

The change will though increase the fund’s exposure to the New Zealand market. As well as the local focus of the fund’s private equity investments, chief investment officer Paul Dyer notes that the inclusion of forestry assets will mean more local investment, as the New Zealand forestry sector is large.

It is not unusual for long term large funds of this type to have sizable investments in forestry, he says.

He points to the Harvard Endowment Fund, which the Guardians have studied closely and which has about 10% of its investments in forestry.

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