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Super fund posts $881m loss

Monday 29th September 2008

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The New Zealand Superannuation Fund turned to a full-year loss as global markets tumbled in the wake of the US housing recession and ensuing credit crunch.

The net loss was NZ$881 million in the year ended June 30, from a profit of NZ$1.09 billion a year earlier, the fund said in its annual accounts. Income from dividends declined 17% to NZ$233 million and interest income fell 15% to NZ$124.6 million.

The fund, dubbed the Cullen fund after promoter Michael Cullen, began investing in late 2003 to build up reserves to help meet pension payments for New Zealanders over the next 50 years. The fund increased to NZ$14.1 billion in the latest year, from NZ$13.1 billion, and is forecast to grow to NZ$109 billion by 2025.

"The fund has been impacted in the short term by the turbulence in the global equity markets," Chairman David May said. "The negative impact comes despite our lack of any significant exposure to the subprime market, the finance company sector, or to the liquidity strains suffered by many financial institutions," he said.

Leaders of the US Congress yesterday reached agreement on a $700 billion package to soak up bad debts related to mortgages and help pump liquidity into credit markets. President George Bush last week warned the US faced a deep recession unless measures to restore confidence in the financial system were implemented.

The MSCI Asia Pacific Index, which tracks leading shares across the region, has dropped 28% this year.

The pension fund's accounts show the shifting composition of the funds, with an increase in fixed-income investments and a decline in global equities.

Global fixed income investments rose to NZ$1.56 billion from NZ$895,287 while global equities fell to NZ$6.09 billion from NZ$6.32 billion. It also increased the amount invested in so-called multi-strategy funds to NZ$2.35 billion from NZ$1.62 billion.

The government adds about NZ$2 billion a year to the fund to help build it up to the point where it can contribute to retirement income of New Zealanders. The government can't withdraw from the fund until 2020.

By Jonathan Underhill

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