How to guarantee NZ Super will fail

'Past performance is no guarantee of future returns' is the standard fund manager rider, which in many cases you'd hope is true. It's a line tacked on to retail fund prospectuses at the behest of legal teams but investors generally ignore it - last year's best fund/asset class/manager always attracts next year's retail money.

Institutional funds don't normally bother with the warning but in its annual reports the New Zealand Superannuation Fund has made a point of saying, in the good times (remember them?) things like "We are acutely aware that this extended period of positive investment return has been unusual and will not be sustained every year."

Well they got that right as Herald journalist Chris Barton pointed out  last weekend.

But Barton took the bad year and made it worse in his article claiming NZ Super's diversification efforts have failed, it has no idea where the money is and little control over the assets. His critique has been well-countered in the Herald by Brian Fallow, in an editorial piece and from the head of NZ Super, Adrian Orr.

I agree with them. It's way too early to call NZ Super a failure (and, for that matter, particular KiwiSaver funds successful) and shut it down or limit its ambit. It is a very long-term fund (it won't have to draw-down on assets until 2027) and as Barton says in his story "the long term is murky" - anything could happen, even an economic recovery.

He's also right in saying NZ Super doesn't reveal the portfolios and returns of its underlying managers (I wish I knew) - not many of them would agree to that - but it is a very transparent organisation. It also exercises complete control over its underlying managers and can fire them in an instant - as it did this week with Brook Asset Management.

Could NZ Super fail to deliver on its expected long-term return? Of course. As Orr told me: "You cannot guarantee its success but you can guarantee it will fail [by constant meddling]."

 




David Chaplin