by Rob Hosking
The Government Superannuation Fund is sticking to its investment policies, in the wake of fierce criticism from some opposition parties.
Much of that criticism was based on the wrong interpretation of Treasury figures on the Fund released as part of last months’ Crown financial statements. Those figures were interpreted – particularly by Green Party co-leader Rod Donald – as meaning the Government Superannuation Fund lost $315 million during the year.
The Fund’s annual report, released yesterday, instead shows an after tax loss of $76 million.
The difference between the expected return for offshore equities for the fourth quarter and the actual had been extrapolated into a $315 million loss, Government Superannuation Fund chairman Basil Logan says.
The fund began investing in offshore sharemarkets, as part of its new diversified investment approach, in October last year.
On an after tax basis the Fund’s return was negative 2.27%.
The Fund’s diversification approach is aimed at reducing the cost of the fund to the government over the long term. That has not worked in the first year – the government will have to “top up” the fund,” Minister of Finance Michael Cullen revealed last month.
However the fund’s management team is refusing to be spooked by a bad result in its first year. “We have no reason to believe differently than what we believed at the outset” Logan said of the Fund’s investment strategy.
By June 30 next year the Fund will have 52.5% of its funds in international equities, 21% in international fixed interest; 14% in New Zealand fixed interest and cash, and 12.5% in New Zealand equities. The fund is diversifying out of its exclusive holdings slowly, Logan said.
Not would a sudden uptake of New Zealand equities by the Fund seriously destabilise the New Zealand Stock Exchange, any sudden exit from government stock would be similarly disruptive. At its peak, the Fund held nearly 11% of all government stock on issue, meaning any diversification process had to be managed in stages.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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