KEY POINTS:
New Zealand Superannuation fund boss Adrian Orr yesterday confirmed the fund would post a net loss on its investments for the year to June because of the credit crunch.
The fund, which releases its June year financial results on Monday, stood at $14.7 billion in May.
"Given our monthly disclosures, it will come as no surprise that over the course of that year we printed a negative return," Orr, the chief executive of the Guardians of New Zealand Superannuation, told the Institute of Financial Professionals conference yesterday in Auckland.
"Our negative return reflects widespread declines in global share prices, driven in large part by financial stability concerns."
Orr said the environment had continued to deteriorate since the end of June.
However, despite the negative return on investment, the fund will have grown overall thanks to taxpayer-funded contributions in the order of $2 billion.
According to the most recent data on the fund's website, its rate of return over the 11 months to May was minus 1 per cent. But it continued to increase in size every month except November and January because of the taxpayer-funded contributions.
A spokeswoman for the fund said the amount of contributions for the June year would not be disclosed until Monday, but the Government tipped in $2.04 billion during the June 2007 year.
Orr said direct exposure to companies in the financial sector, which has borne the brunt of the credit crisis, had been less than 10 per cent of the fund's total assets.
"However, the specific companies that have attracted much of the media attention recently have made up only a small proportion, that is, less than 1 per cent of the fund."
They included Lehman Brothers, AIG, Morgan Stanley, Bear Stearns, Merrill Lynch and HBOS.
"We have deliberately spread our operational risks. By far the biggest impact on fund returns has been due to the indirect effects of the recent market turmoil."
However, even with the recent losses, the fund's long-term average return remained ahead of targets.
While the financial and economic environment presented challenges, said Orr, it also offered potential bargains, particularly for outfits such as the Super Fund which had liquidity, a rare commodity at present.
The fund began investing in 2003 and was set up to help meet the future cost of providing retired New Zealanders with a basic income.
