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Donald sticks with his GSF criticism

Green co-leader Rod Donald is sticking to his criticisms of the Government Superannuation Fund’s investment strategy, despite this week’s turnaround in the fund’s fortunes.

Friday, August 8th 2003, 6:40AM

by Rob Hosking

The Government Superannuation Fund made a pre-tax gain of $241.7 million for the three months ending June 30, chairman Basil Logan announced this week. That compares with a $10 million loss the previous quarter, and

The pre-tax return on international equities was $139.9 million - 4.5% on the total fund.

However Donald – who has repeatedly attacked the government’s decision to allow the GSF to put its money in investments other than government bonds, says the turnaround demonstrates the volatility of international equities.

The fund has been closed to new members since 1992, but expects to continue pay-outs for another 60 years. Only about one third of the fund’s liabilities are covered by the fund: the rest have to be “topped up” by the government.

The fund was allowed to diversify its portfolio by the government in 2001 as a way of reducing the amount the taxpayer will have to stump up.

However, last year’s loss, because of the downturn in world equities, meant the government faced a liability of $436 million above what was forecast, according to a finance and expenditure select committee report.

Donald maintained that the losses since the fund was diversified meant it would have to make a return of 9% a year if it is to make its targeted return in 2010.

And because the government faces a liability every time the fund makes a loss, Donald says the GSF should revert to its earlier practice of low risk investments in government bonds.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« GSF turnaroundGuardians expected to be conservative »

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