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It could be time for a cold shower

By Peter V O'Brien

Friday 27th June 2003

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The so-called "debate" about investment of the New Zealand Superannuation Fund's money has drawn together strange bedmates in an argument that would be amusing but for its pathetic elements.

Anyone who thinks the proponents of relatively high investment in New Zealand (as opposed to diversification overseas) are noble, financially disinterested parties arguing for the "national interest" should take a cold shower and then one of former prime minister David Lange's famous, or infamous, cuppas.

The chance to grab money from a taxpayer-financed fund for pet projects always attracts the zanies, the opportunistic and the greedies as rodents are attracted to cheese-flavoured baits.

Guardians of the Superannuation Fund are probably resilient enough to make appropriate investment decisions without bowing to lobbyists.

They should not hold their jobs if shown to be amenable to pressure from vested interests.

Prudent investment of what are effectively trust funds demands an objective approach, taking account of risk and returns.

Risk and returns are interwoven, but "risk" is subdivided into segments.

It involves balancing market volatility relative to each investment class, economic developments as they impinge on place and type of involvement and liquidity ­ the ability to get out of an investment if it goes sour.

Outlandish ideas to use Superannuation Fund money improving roading systems, preserving the environment and financing general infrastructure overlook the liquidity factor.

The well-known US share market anecdote is relevant. An investor bought shares. They went up. The investor bought more, the price rose again and so on. Substantial paper profits accumulated, until the holder told the broker to sell.

"To whom?" came the query, the "profit" gainer being the only person chasing the stock.

Risk questions also apply to schemes to use some of the Superannuation Fund for regional development and/or effective venture capital.

Most, if not all, the Guardians were around when the ill-fated Developments Finance Corporation tried to undertake that role before switching to risky general market plays.

Both strategies were failures.

The question of infrastructure investment must depend on charges for using the capital.

Greens and regional development gurus would probably be in the van of opposition to such a philosophy.

It was both amusing and pathetic to see state-interventionist lobbies and the Stock Exchange (now NZX) scrambling for a high level of investment within the country.

NZX criticised investment models from the fund's advisers, a matter the advisers reckoned the exchange had wrong.

The Stock Exchange is now a listed company.

A listed exchange raises other issues. Its basic shareholders (brokers and some exchange staff) have vested interests in extra listings and in buying pressure on listed companies.

Brokers increase their income, performance clauses in staff contracts are enhanced, shareholders gain their satisfaction or self interest.

Look at Australia, they could say.

So what? The fact something happened elsewhere is no argument in its favour.

NZX's "considered views" about the Superannuation Fund can be dismissed on the grounds of self-interest.

The exchange is legitimately involved in maximising profit, one example being recent substantial increases in charges for information dissemination; another example the cost of the daily memorandum going up 33.3% from July 1, because of "higher production costs."

The Commerce Commission does a noble job trying to enforce provisions of the Fair Trading Act, warning New Zealand about scams and potential scams and being a general watchdog.

It sometimes comes unstuck, as shown last week when it warned Australian company Ross Securities that letters sent to holders of BIL capital notes were "misleading and deceptive and at risk of breaching the Fair Trading Act."

The commission was basically telling note-holders to ignore an offer based on claims BIL was, effectively, in trouble, a matter the investment company could possibly pursue in the Australian courts. Anyone running Ross Securities would rest easy after the commission's warning.

The Commerce Commission's writ runs only in New Zealand. Ross is "beyond the jurisdiction," in legal terminology, as are the Nigerians and others bombarding potentially gullible Kiwis.

It is about time New Zealand and Australian legislators and regulators harmonised rules so an offence in one country can be followed in the other.

Australian states harmonise between themselves and with the federal government. New Zealand should be a doddle.

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