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Super fund set to be big earner

Much has been said about the size of the New Zealand Superannuation Fund, but little has been said about its impact.

Tuesday, November 18th 2003, 10:14PM

by Philip Macalister

The New Zealand Superannuation Fund's annual report makes it clear that the impact of this multi-billion fund will be quite major for future governments - and taxpayers.

The fund has the performance goal of beating the risk free rate of return by 2.5% annually over rolling 20-year periods.

The hurdle mightn't sound high, but chairman David May warns it's not an easy goal.

He says in the annual report that in some years the fund "may better" its target and in some years "it may not reach it."

It won't beat the target in the first year as most of the fund's assets are held in cash. However once it gets up and running the impacts are big.

May says that "each one percent per year of investment return above the cash rate achieved over the next 20 years is estimated to benefit the Government and future taxpayers by around $8 billion."

Taking a longer view the fund says that if it achieves this target over 20 years then it will generate an extra $22 billion in investment returns.

However, he warns critics not to take a short-term view of the fund.

One of the big questions being asked is when will the fund start investing?

Its Guardians aren't giving much away, but a little snippet from the annual report says that the Guardians took control of the money ($2.4 billion) in late September from Treasury's Debt Management Office.

They say the fund has established a "process to ensure a smooth transition of its assets from cash to the chosen investment managers which will reduce the market impact of transactions."

The most likely area of first investing is New Zealand shares as three of the four managers have been appointed. The fund is planning two New Zealand fixed interest mandates (one appointed), three international fixed interest and seven international shares (one appointed).

Other snippets of news in the annual report are that no one was paid more than $100,000 during the year - however that is understandable as chief executive Paul Costello had only been in the job for a month.

The board were paid $99,000 in total with chairman May getting $28,000 and former National MP Sir Douglas Graham getting $16,000. The other board members all fell in the range of $13,000 to $14,000.

While the fund has done well and met most of its targets, it did breach the legislation in one area by failing to provide its accounts to the auditor on time.

Another curious comment in the notes is that the government's capital contributions were less than the amount determined by the New Zealand Superannuation Act.

« Cash flush Labour should cut taxesGuardians appoint another manager »

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