Cullen camp tips hands-off style on pension fund

By VERNON SMALL deputy political editor

The Coalition's giant pension fund will not seek control of companies it invests in, says Finance Minister Michael Cullen.

He told a parliamentary select committee yesterday that if the fund found itself with a controlling stake it would sell down its holding.

A spokesman for Dr Cullen said that as a portfolio investor the pension fund would operate more like AMP than Brierley Investments. Such portfolio investors rarely went above 10 per cent to 14 per cent of a single company.

He said an added complication was that the fund would be a crown entity, meaning that any companies it controlled could come under the Audit Act or other crown financial requirements.

If it became a majority shareholder the fund would assume responsibilities to minority shareholders and could be required to make an offer to minority holders under the Takeovers Code.

The notion of "control" varied under different laws and in different countries, but the Companies Act definition would likely be preferred.

That definition turns on the ability to control the make up of the board.

Asked in the House by National's finance spokesman, Bill English, if he would accept Treasury advice that most of the fund should be invested overseas, Dr Cullen said ministers would not decide the form and location of investments.

He said the fund's guardians, who would appoint professional managers, would be required to invest on a prudent, commercial basis.

"In doing so [they] must manage the fund in a manner consistent with best-practice portfolio management, maximising return without undue risk to the fund as a whole, and avoiding prejudice to New Zealand's reputation as a responsible member of the world community," he said.

The spokesman said this "high-level ethical restraint" would prevent investment in unacceptable activities such as gun running to Myanmar.

But the Government would avoid "go and don't go" definitions, such as banning investment in tobacco companies, because views of such investments changed over time.

Dr Cullen said the fund's guardians would publish a statement of investment policies, standards and procedures. These would be reviewed at least annually. They would also publish a statement of intent covering their expectations about the performance of the fund, the risks it faced and how they would be managed.

An annual analysis of its performance, and a comparison with expectations of performance would also be published.

Legislation setting up the fund is due to be introduced before Christmas, and it is likely to get support across the House for referral to a select committee for public submissions.

However only Labour and the Alliance have vowed to support the bill through all its stages, and the Government will need the backing of at least one other party to pass it into law.

The fund will set aside cash to partially pre-fund the growing cost of baby boomers' pensions over the next 50 years.