Treasury progresses strategy to put more super fund assets in NZ

By Paul McBeth

Monday 30th March 2009

The Treasury is preparing advice for the government on options to increase the allocation of investment by the New Zealand Superannuation Fund into local assets.

The government instructed the department to look at ways to channel a larger allocation of the fund's $11.8 billion of investments into New Zealand assets, with an eventual aim to increase the fund's domestic holdings to 40% of the total. The project doesn't include providing funds for the potential bailout of privately owned companies, the department said in response to an Official Information Act request.

"Policy advice in these areas is still under development and I'd be surprised if anything publicly available in the next couple of months," said Bryan McDaniel, a spokesman for the department.

Pushing more of the funds back into the local economy was among National's campaign pledges in the run up to the elections that swept him to power last year. Leader John Key said the fund "belonged to all New Zealanders" and more of it should be used to underpin the economy, mired in its first recession fro a decade.

The fund, which began investing in September 2003 with $2.4 billion in cash, was set up to partially offset the cost of superannuation payments for an aging population. It held 27% of its portfolio locally as at Jan. 31.

Key said an increase in the fund's domestic allocation would give local businesses more scope for growth and allow "additional investments in New Zealand infrastructure" through securities such as longer-dated infrastructure bonds.

Other investment opportunities cited by Key included New Zealand equities, government bonds, high-quality commercial paper, local government fixed-interest securities, private equity, property, infrastructure, forestry and commodities.

The fund has shed 26% before tax so far in the current year. Since its inception, it has provided an annualised rate of return of 4%.

Chief executive Adrian Orr this month said it was important a government edict on redirecting investment wasn't imposed on the fund with too much haste.

"It is important that the Guardians have sufficient time and flexibility to maximise their New Zealand investment exposure, making commercial, prudent decisions." That would require sufficient opportunities across all available assets, he said in a March 5 statement posted on the fund's website.

The fund recently sold 200,000 shares in Michael Hill International, reducing its holding to 4.99%, according to a filing today. The jeweller's stock fell 3.8% to 51 cents in mid-day trading.

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