About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   depositrates.co.nz  |   landlords.co.nz
Last Article Uploaded: Monday, October 20th, 9:28PM
Latest Headlines

How to invest a $45 billion fund

In the first of a new series SuperTalk examines the investment issues facing the Guardians of the Big Cullen Fund.

Thursday, May 31st 2001, 12:57PM

by Philip Macalister

Assuming the government gets the numbers to introduce its pre-funding scheme for New Zealand Superannuation one of the big issues will be how to invest the thing.

The fund kicks off this year with a $600 million injection from the Government. Payments will be made into the fund fortnightly from July 1.

Until the fund is established the money will be looked after by Treasury's Debt Management Office which will in all likelihood invest it in cash and fixed interest.

During this initial start up period the fund will struggle to meet its 7% pre-tax assumed rate of return.

The assumed transfers for the subsequent three years are $1.2 billion, $1.8 billion and $2.5 billion respectively.

By 2010 the government will have provided capital contributions of $26.5 billion.

It will be a significant player in the market when compared against the present size of the industry. (At the moment there is about $45 billion invested in the local managed fund industry, and the sharemarket has a market capitalisation of about $45 billion).

Frank Russell managing director Craig Ansley says while the fund is big by New Zealand standards, it's small internationally. He reckons over half of Frank Russell's international clients have funds bigger than what the Government is proposing.

The good thing about the fund, he says, is that it will be big enough to have a decent investment programme.

The question though is how should this money be invested by the fund's Guardians?

Some of the main issues they face are:

  • How much of the fund should be invested offshore?
  • How much should be put into international shares?
  • Should the fund be allowed to invest in New Zealand Government bonds?
  • How does it deal with currency exposure?
  • How does it implement a socially responsible investment policy?

The first issue of how much of the fund should be invested offshore has already proved to be an early target for the politicians.

Finance minister Michael Cullen has made no pronouncements on the matter, except to say that the Guardians should be allowed to do whatever they deem appropriate.

Meanwhile the Alliance and the Greens are keen to see the bulk of the money used in New Zealand.

Somewhat surprisingly one of the planks of National's attack on the fund has been about exporting capital, a euphemism for investing offshore.

This argument, which National's finance spokesman Bill English regularly highlights, is somewhat strange as it comes across as slightly xenophobic. Additionally National is meant to support globalisation and free trade, which includes capital. (For more see: English airs concerns over pre-funding)

The other interesting argument is what would happen if National had its way? The theory is that instead of putting surpluses into the super fund they would be returned to taxpayers, who would then save the money in their own name.

Assuming this happened it is worth looking how individuals would invest that money.

No matter which set of statistics you look at it is clear that the increasing trend in New Zealand has been for people and funds to increase their exposure to offshore assets.

Therefore if individuals were investing the money, as opposed to the government then they would choose to export the capital too.

While the current trend is clear there is a wide range of views being expressed on this issue already with some saying that the entire fund should be invested in passive offshore equities, while others say the fund should be New Zealand based.

Likewise there is the issue of how much, if any, of the fund should be used to buy NZ Government bonds.

Ansley says this issue is rather circular and is akin to one investing in its own mortgage.

"This would certainly bother me."

He says the public are constantly told to pay off its mortgage before starting to save.

"That's would we should be doing."

Ansley also suggests that the fund is the ultimate defined benefit plan in that its investments (assets) can be matched directly to future liabilities (future state pensions).

Because there is no need for income until the fund starts paying out pensions until 2025 it should all be invested in growth assets.

Another major issue which has surfaced is how will the Guardians deal with the requirement to invest the fund without prejudicing New Zealand's reputation as a responsible member of the world community, in other words how does it include a socially responsible attitude into its mandate.


www.supertalk.co.nz will be running a series of articles and columns on How to Invest the Fund over the next couple of weeks.

You can take part in this debate too!

  • Give the Guardians your views on this topic through the Discussion Forum
  • Vote here on the question of how the fund should be invested

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

« Fund's rules present problemsAMP & Good Returns launch superannuation website »

Special Offers

Commenting is closed



Printable version  


Email to a friend
News Bites
Latest Comments
  • Commission questions to be asked
    “I feel that all risk commission/bonuses payable should be disclosed in dollar terms, and in the event of replacement business...”
    3 hours ago by macca
  • Commission questions to be asked
    “The commissions in Australia on personal risk insurance are around 115% of initial premium- already well below NZ levels....”
    5 hours ago by Mike Naylor
  • Commission questions to be asked
    “Like most things that are considered, the consumer reaction is unlikely to be taken into account. It’s less about fees...”
    10 hours ago by Pragmatic
  • FAA review 'starting with a blank slate'
    “It is quite critical that legislators etc have some knowledge of investment theory before they legislate. For example Mr...”
    1 day ago by Brent Sheather
  • Don't discount small caps: Gaynor
    “Brian is quite correct. Also PIE funds is, and remains, a brilliantly successful manager. Massive return from a specialty. If...”
    5 days ago by NormanStacey
Subscribe Now

News and information about KiwiSaver

Previous News


Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AMP Home Loans 7.24 ▼5.69 6.39 6.65
AMP Home Loans $200k+ 7.14 ▼5.59 6.29 6.55
AMP Home Loans LVR <80% - - ▲5.99 6.19
ANZ 6.74 6.15 6.49 6.49
ANZ Special - 5.75 5.99 -
ASB Bank 6.75 6.09 6.40 6.65
ASB Bank Special - 5.70 ▼5.75 6.19
BankDirect 6.75 6.09 6.99 6.65
BankDirect Special - 5.70 ▼5.75 6.19
BNZ - Classic - - ▼5.75 6.19
BNZ - GlobalPlus 6.74 ▼5.89 6.39 6.59
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.15 - - -
BNZ - Rapid Repay 6.74 - - -
BNZ - Std, FlyBuys 6.74 ▼5.89 6.39 6.59
BNZ - TotalMoney 6.74 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.45 6.05 6.20 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
eMortgage 6.04 6.15 6.69 7.19
Finance Direct 6.10 6.45 6.69 7.10
First Credit Union 6.45 - - -
Lender Flt 1yr 2yr 3yr
General Finance 5.95 6.25 6.50 7.10
HBS Bank 6.65 5.85 5.99 6.19
HBS Special - - - 5.89
Heartland 6.70 7.00 7.25 7.85
Heretaunga Building Society 6.70 6.00 6.50 -
Housing NZ Corp 6.74 5.99 6.39 6.59
HSBC Premier 6.84 5.95 5.95 6.39
HSBC Premier LVR > 80% - 5.75 5.75 5.75
HSBC Special - - - -
ICBC 6.75 5.99 6.39 -
Kiwibank 6.65 5.79 6.39 6.65
Lender Flt 1yr 2yr 3yr
Kiwibank - Capped 5.65 6.50 - -
Kiwibank - Offset 6.55 - - -
Kiwibank LVR > 80% - - 5.89 6.19
Liberty - - - -
Napier Building Society 5.80 6.00 6.70 -
Nelson Building Society 6.95 6.15 6.60 -
NZ Home Loans 6.85 6.09 6.40 6.65
Perpetual Trust 7.70 - - -
Resimac 6.59 6.35 6.58 6.77
SBS Bank 6.65 5.85 5.99 6.19
SBS Bank Special - - - 5.89
Lender Flt 1yr 2yr 3yr
Silver Fern 5.95 6.10 6.55 7.05
Sovereign 6.85 6.09 6.40 6.65
Sovereign Special - - - 6.19
The Co-operative Bank 6.70 5.95 5.99 6.19
TSB Bank 6.74 5.95 6.19 6.30
TSB Special - - 5.79 -
Wairarapa Building Society 6.20 5.75 5.95 -
Westpac 6.59 6.09 6.39 6.65
Westpac - Capped rates - 6.74 6.99 -
Westpac - Offset 6.59 - - -
Westpac Special - - 5.99 6.19
Median 6.70 6.00 6.39 6.55

Last updated: 21 October 2014 6:31am

News Quiz

In a study of performance fees by Pathfinder, how many of the 10 equity PIE funds reviewed have to achieve a margin over and above their benchmark before performance fees kick in?







About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
Site by PHP Developer and eyelovedesign.com