Super fund strategy moves into fresh fields

The New Zealand Superannuation Fund is to pour money into alternative assets at the expense of global stock markets.

The fund, also known as the Cullen Fund, aims to have 20 per cent of its money in alternative assets and property by June 2007. This will eventually increase to 35 per cent.

Alternative assets targeted include infrastructure, private equity, commodities, forestry and hedge funds. No money is invested in such assets now.

Exposure to global stock markets will be scaled back but the fund will maintain a 7.5 per cent weighting in New Zealand shares.

Although it gets tax benefits from local imputation credits, the fund says its size relative to the New Zealand sharemarket will remain a constraint on increased exposure.

The changes to asset allocation are designed to lower long-term risks without compromising returns.

Chief executive Paul Costello said the changes to asset allocation were a signal of the fund's long-term direction but further tweaking was likely.

He said the National Party's recent declaration of support had helped clear the way for it to get on with diversification. David May, chairman of the Board of Guardians of NZ Superannuation, said the cautious move towards alternative assets was to ensure quality was not compromised by "rushing in".

He said diversification would improve the probability of the fund meeting its performance target - to 75 per cent from 72 per cent. This target is to generate a return of at least 2.5 per cent above the rolling yield on 90-day Treasury bills over 20-year periods.

In private equity, the fund will focus solely on New Zealand, and will invest up to $100 million over three to five years. Sydney-based firm Quentin Ayers has been appointed to manage private equity investment.

Another Sydney firm, Capital Partners, will manage infrastructure. The fund's chief investment adviser, Paul Dyer, said infrastructure investments could include power, water, gas, roads or ports.

Dyer will be "delighted" if infrastructure investment opportunities emerge in New Zealand but these will be assessed on the same basis as overseas opportunities.

"We treat New Zealand no differently to the rest of the world," Dyer said. Investment choices boiled down to "commercial decisions".

Investments in commodity futures contracts could include oil, precious metals, industrial metals or even pork belly futures.

Established by the 2001 New Zealand Superannuation Act, the fund started investing in September 2003 with $2.4 billion. The Government is allocating an average of $2.2 billion a year to the fund over the next 20 years as it tries to partially provide for the future cost of superannuation.

The fund's value at February 28 was $5.75 billion. It is expected to grow to $105 billion by 2024.