NZ Super Fund loses $200m after 'risk free' loan to Portuguese bank

Adrian Orr, Chief Executive of the New Zealand Superannuation Fund. Photo / Steven McNicholl

Almost $200 million of taxpayer money invested through the Kiwi Superannuation Fund has been lost after a Portuguese bank where the money was invested, supposedly as a "risk free" loan, collapsed.

The Super Fund, set up with public money to cover partly the retirement costs of baby boomers, has revealed it had been caught up in last year's collapse of Banco Espirito Santo (BES) and a US$150m (NZ$198m) investment made in July had been completely wiped out.

The investment was a contribution to a Goldman Sachs-organised loan to the Portuguese bank, but only weeks after the money was injected it imploded, with president and founder Ricardo Salgado arrested as part of a criminal investigation into tax evasion.

After disclosing billions of Euros in losses, and facing a run on funds by depositors, the bank collapsed in a heap and was broken up in August.

Goldman Sachs, described by Rolling Stone as "the great vampire squid" for their sharp business practices in the run-up to the global financial crisis, today said it would "pursue all appropriate legal remedies without delay" in an attempt to recover the loans to BES.

The company also announced that, alongside the Super Fund, they were suing the Central Bank of Portugal over their loans being excluded from the bailout of BES.

Despite this legal action, Super Fund chief executive Adrian Orr conceded today the entire investment had been written off as a "conservative" precaution.

Ricardo Salgado. by Monart - Licensed under CC BY-SA 4.0 via Wikimedia Commons - http://commons.wikimedia.org

Finance Minister Bill English, the minister responsible for the Super Fund declined to comment on the spectacular loss, but Green Party MP Russel Norman said Mr English should be demanding answers.

"They have to give some sort of explanation as to why they gambled US$150m in this case, and why it's come unstuck," he said.

The episode also illustrated what the NZSF should try to avoid, Mr Norman said.

"For a fund operating on behalf of the NZ taxpayer, taking these high-risk investments is probably not appropriate," he said.

Mr Orr denied the investment was high-risk and said the NZSF had been covered in the event of BES defaulting. "It was risk-free with insurance," he said.

However, an unusual retrospective rule change in Portugal had resulted in the insurance being voided. Orr added the Super Fund had withdrawn lending to banks in Portugal until the result was overturned.

The Fund said the loss amounted to only 0.7 per cent of the firm's total pool of $27b in assets.