Crown risk levels not Govt affair, says expert

An actuary who undertook the last independent review of the New Zealand Superannuation Fund says the Government's decision to have a greater say in how much investment risk Crown Entities take is fraught with governance issues.

Finance Minister Bill English yesterday said he had written to organisations such as ACC and the New Zealand Superannuation Fund about risk levels in their portfolios.

Last week English said the Government had built up almost $30 billion worth of investments in financial markets.

The last Crown accounts for the eight months ended February 2009 showed those assets had lost $9.8 billion in value since September.

The majority of this shortfall - $5.5 billion - related to losses in the New Zealand Superannuation Fund.

English said in the past decade the Government had not talked to these financial institutions about how much risk ministers were willing to tolerate.

"We're just starting a discussion with them about the right way for the Government to specify what risks it says they can take," English said.

He did not imagine returning to the days when most Crown entities could invest only in Government bonds or ultra-safe bank deposits.

"But I think we've probably swung too far to where the institutions make up their own minds about whatever they do.

"Those losses in the end come back on the taxpayer so the taxpayer, or government representing the taxpayer, should have a view on what happens to taxpayers assets."

There was no suggestion that the entities would be told to pull out of the market, but a "complex" process had begun about how the Government would indicate its preferences for investments.

But Jonathan Eriksen, who reviewed the super fund in 2004-05, said greater Government interference was not a good idea because it did not have the resources to do the job properly.

"The way these entities are set up, they have their own governance structure with a board and mandates."

When the fund was set up by the then finance minister Michael Cullen, the minister was able to direct the fund but the Crown entities were left to their own devices. "I think that is still the right approach," said Eriksen.

Eriksen said Crown Entities had very different liabilities and needed to match their investment strategy to meet those.

The risk profiles of the entities should be reviewed in light of the credit crunch but that should be undertaken by the entity and its professional investment team.

- NZPA