by Rob Hosking
Opposition flak over the projected quarterly loss of the Government Superannuation Fund yesterday looks like a foretaste of the kind of fire that may be in store for the Big Cullen Fund.
The Government Superannuation Fund is still in the process of diversifying itself out of the ultra safe government bonds and into a broad range of investments, with the aim of getting a better return than the fund has attained in the past.
The eventual aim is for a spread of 14% New Zealand fixed interest; 12.5% New Zealand equites; 52.5% international equities, and 21% international fixed interest.
It is the international equities part of that spread which attracted the ire of Green co-leader Rod Donald yesterday. However, as fund research company Fundsource has pointed out, the Government Superannuation Fund has hardly gone berserk.
The level of exposure to overseas equities is currently around 44%, says Fundsource’s Tim Anderson – "and that sort of allocation of assets is definitely on the conservative side."
A balanced, medium level of exposure would be between 50-55% exposure to international equities – which is where the Government Superannuation Fund aims to be.
"This is ‘Investing 101’ really – take a balanced approach and take a long term view, rather than getting all excited over a quarterly loss."
The news of the loss yesterday was hardly "new" – Minister of Finance Michael Cullen let slip nearly a month ago at a select committee that the Fund would probably make a slight loss, and that the taxpayer would have to add to the $660 million already allocated.
That appeared to be contradicted by acting minister Trevor Mallard yesterday, who talked of the fund making a slight profit. That carefully worded statement, however, included the phrase ‘pre-tax’ before ‘profit’, suggesting that political spin, rather than accuracy, was the order of the day.
But it does highlight a broader issue. The government’s much larger Big Cullen Fund will be subject to similar – and potentially larger – short term losses, as it builds up. A bit more ‘Investing 101’ might be necessary to avoid some of the over-excitement yesterday’s news generated.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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