KEY POINTS:
The United States sub-prime crisis is taking a big bite out of returns for the New Zealand Superannuation or "Cullen" Fund with investments in US financial stocks and banks being hit particularly hard.
The fund, set up in 2003 to help meet the cost of providing New Zealanders with retirement income over the long term, released November performance figures yesterday showing a negative 3.52 per cent return for the month and a negative 0.8 per cent return over the financial year to date.
Given the dismal performance of equity markets around the world, including those in the US where the fund has about 42.5 per cent of its cash invested, it looks likely the fund will report further losses over coming months.
US stocks, particularly those in the finance sector where the fund has some large holdings, have continued to suffer as more bad news about institutions' exposure to the sub-prime crisis have emerged. And the US economy looks in danger of slipping into recession.
Hardest hit have been mortgage lenders including Countrywide Financial, which has been in free-fall on rumours of imminent receivership.
Its shares were trading at US$36.35 on June 29 last year, at which point the Super Fund's stake in the company was worth $11.43 million.
On Thursday Countrywide's shares were at US$7.75 and the same stake would have been worth just $2.4 million. A spokesman for the fund, which is operating on a skeleton staff because of holidays, was unable to say whether the fund had reduced its exposure to the US market or the most vulnerable stocks on it. "We run an outsourced manager mandate programme and we don't comment on their investment decisions."
As at the end of November, the fund had an overall value of $13.68 billion, down from $14.01 billion in October, despite fortnightly Government injections which total about $2 billion a year.
November's losses take the fund's overall return on investments since the start of its financial year in July to negative 0.8 per cent.
The fund's guardians have been instructed by the Government to achieve a pre-tax return at least 2.5 percentage points over a "risk free" rate set by New Zealand Treasury bills. During the year so far, it has underperformed that target by 3.92 percentage points.
