Weldon dismayed over fund carve-up

By ELLEN READ

Stock exchange head Mark Weldon is dismayed that the New Zealand Superannuation Fund will invest an "infinitesimal" 7.5 per cent of its money in local shares.

"As a New Zealander I'm tremendously disappointed that in a country that is capital starved we have had a golden opportunity to take care of savings and growth and have completely missed it," he said after confirmation yesterday of where the Superannuation Fund (NZSF) money would be placed.

"It's textbook 101 that savings leads to investment and what they are doing is throwing New Zealand's savings money into offshore markets to fund growth overseas."

After a false start on Wednesday when information was prematurely posted on the NZSF website, the guardians have formally revealed their investment intentions.

The fund - which is forecast to grow to $100 billion in 20 years - has a strong bias towards growth assets and is skewed towards overseas investment - with a 78/22, foreign/local split.

Of the 22 per cent in local assets, 10 per cent goes to bonds (government and corporate), 7.5 per cent to equities and 4.5 per cent to "other", including property, private equity and infrastructure.

NZSF guardian board chairman David May said those "other"investments would be through funds rather than directly. The aim was to beat the cash rate, now at 5 per cent, by an average 2.5 per cent a year.

May said the decision to invest a substantial portion overseas was made to diversify the portfolio and spread its risk.

By law, no withdrawals can be made before 2020.

Weldon said placing just 7.5 per cent of the fund in the local stockmarket means around only $140 million a year, or 0.2 per cent of the market's current $36 billion market capitalisation, would be invested here.

"That's so infinitesimal, it's off everybody's radar."

Expectations were the fund would allocate around the usual 15 per cent to local shares and Weldon had made a case for up to 30 per cent.

He was thrown a carrot with the fund saying it could increase its allocation to local equities if the market grew sufficiently.

Weldon pointed out that the market is up 11 per cent so far this year. "That's $6 billion of wealth creation already. They haven't made it at all clear what needs to occur."

First NZ Capital strategist Jason Wong said that over time the NZSF would become a significant player in the local managed funds industry.

"But its large weighting towards global assets suggests that its impact on New Zealand asset prices, at least over the next decade, is likely to be minimal," he said.

The NZSF domestic allocation is low by international standards - a situation Weldon believes stems from the fact that the main adviser (Mercers) and the peer reviewer (Russell) are international companies with little exposure to New Zealand.

Weldon's disappointment was reflected on the sharemarket yesterday; the NZSX-50 index closed 12 points lower at 2204.72.

May said investing heavily overseas did expose the fund to currency movements so the fund would hedge 60 per cent of its overseas shares and all its overseas fixed interest back into New Zealand dollars. As many as 24 fund managers will be appointed.