Cullen's baby-boomer fund makes flying start

By JIM EAGLES


The Cullen Fund, which will be used to top up superannuation payments to baby boomers, has made an impressive start by earning the equivalent of 6.9 per cent a year on assets in its first two months.

That is only slightly below its long-term target of 2.5 per cent above the risk-free rate of return.

In November, it exceeded that target, despite still having much of its money tied up in Treasury bonds.

While wary of taking too much out of such short-term figures, Tim Anderson of managed-fund research company FundSource described it as "a positive start".

The New Zealand Superannuation Fund, which is expected to peak in 20 years with $100 billion worth of assets, yesterday issued the first of what are planned to be monthly updates of its performance.

It showed that on November 30, the fund's assets totalled $2.7 billion, made up of the initial inflow of $2.4 billion in Treasury bills on September 30, plus contributions of about $70 million a fortnight since then.

At that point it had $1.8 billion in Treasury bills and cash, $575 million in international equities, $226 million in local fixed interest securities and $102 million in local equities.

By far the biggest local shareholding was in Telecom.

But it also had shares in Contact, Carter Holt Harvey, Sky City Entertainment, Auckland International Airport, Fletcher Building, The Warehouse, INL, Promina and F&P Healthcare.

Chief executive Paul Costello said it would be some time before the fund could allocate all its funding to the different asset classes planned, as it was still in the process of appointing the full range of investment managers.

But the aim was to have the fund close to fully invested by June next year.

Costello said the first priority was to ensure money was invested prudently.

At the same time it had a target of exceeding, before New Zealand tax, the risk-free rate of return (the interest rate payable on cash) by an average of at least 2.5 per cent a year over rolling 20-year periods.

But it was unlikely to meet that target in its first year of operation because a high proportion would be held in cash for much of the time.

In October, the report revealed, the fund's investment earnings - interest, dividends and capital gains - were $10 million or a return of 0.40 per cent for the month.

That equates to an annual return of 4.8 per cent, compared to a target rate of 7.6 per cent - the return on Treasury bills that month of 5.1 per cent plus the 2.5 per cent margin.

In November, the fund earned a further $18.9 million, equivalent to a return of 0.73 per cent for the month.

That was equivalent to 9.2 per cent a year, against a target rate of 7.6 per cent.

Performance for the two months combined was 1.13 per cent, or an annualised 6.9 per cent, just below the target.

Anderson of Fundsource said the initial return could be seen as a good result.

"But," he added, "it is too early to make any assumptions about long-term performance for two reasons.

"Firstly, the time period is too short to be statistically representative.

"Secondly, the fund is nowhere near fully invested, particularly within equities."


Super fund website