The multi-billion fund, proposed by the Finance Minister Michael Cullen to prefund part of the future costs of New Zealand Superannuation will have little positive impact on the domestic economy, according to actuary Michael Chamberlain.
He says if the fund's objective was to create wealth and it had to be invested along prudent lines, such as a trustee would do with money in a superannuation fund, then all the money should be invested into overseas shares.
His reasoning for this is that because the fund has no need to make payouts until 2030, then it doesn't need to invest in cash.
Likewise, no income stream is needed for 30 years so bonds, either local or offshore are not required.
Chamberlain also dismisses property as an asset class, despite its growth characteristics, due to liquidity issues.
"I wouldn't like to be the guardian trying to sell property in 2030," he told a Superannuation conference in Wellington last week.
By default 100 per cent of the fund should be in shares, he says. "Intuitively that's logical."
Because the fund wants to minimise its risk to an under-performing New Zealand economy then all the share allocation should go offshore.
His view is that if the money was poured into New Zealand shares then supply and demand issues, rather than fundamental valuations would drive up prices.
Such a situation would see buyers paying more for a share than it was worth. In this scenario the only way out of the investment would be to find a buyer who was prepared to pay an even higher prices to liquidate the investment.
"If you pay $2 for a $1 dog, then they you have to find a dumb investor to buy that $1 dog for $3," he says.
Putting all the money offshore would also have a negative impact on the New Zealand dollar.
| « News Round Up | Get your tax questions answered online » |
Special Offers
© Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved