$315m plunge forces super-fund rethink

By VERNON SMALL


The Government has flagged changes to the Government Superannuation Fund's investment mix after falls in world stock markets and a strengthening dollar sliced $315 million off its value in just three months.

Acting Finance Minister Trevor Mallard said yesterday that he expected the board of the GSF would reconsider its plans in light of world trends.

"There are clearly some issues and some rebalancing that will occur as a result of this. Clearly the New Zealand stock market is more attractive now relative to others compared to what it used to be.

"There is always room to revise investment intentions and directions."

The GSF receives contributions from 22,000 state employees and pays pensions to 53,000 former employees. It has assets of between $3 billion and $3.5 billion.

The fall in asset value does not affect beneficiaries, who have Government-guaranteed fixed entitlements.

However, it does increase the amount taxpayers will have to contribute.

As part of a diversification strategy to lift its earning rate, the GSF had aimed to have 44.2 per cent of its assets invested in overseas share markets and 8.7 per cent in the New Zealand market by last July.

That would rise to 52.5 per cent in overseas share markets and 12.5 per cent in New Zealand by next June.

But by July it had not reached its 44.2 per cent target.

Mr Mallard said the fund had done relatively well on the bond market but equities had not done as well.

The GSF has appointed Frank Russell Company as its investment adviser. AMP Henderson Global Investors and BNZ Investment manage its international equities.

Treasury estimated that the "unfunded liability" of the fund that falls on taxpayers was $8.9 billion at the end of the June financial year, up from $8.5 billion in June 2001.

The GSF has estimated that the unfunded liability will increase by $400 million no more than once every 20 years.

Mr Mallard said that with a drop in asset value of $315 million in the June quarter it was "certainly getting to the outside of its 20-year probability".

While the cash would have earned more in the bank, the fund was aiming to lower the share the Government had to pay over 30 to 50 years.

Before starting to diversify last year the GSF was limited to investing in safe but conservative fixed-interest investments.

In the year to June 2000 it earned only a 2 per cent return. That was considered inadequate.

"In this case quite clearly it would have been much better to put the money into the Post Office and the return could well have been slightly more in that case," said Mr Mallard.

"But it is under a clear direction from Government to, over the longer term, make sure that you and I as taxpayers don't have to pay any more than we have to."

He said most investors in international shares had "taken some hits in the past year".

Apart from the movement in asset prices, the fund is expected to make a small pre-tax profit in the year to June 30, 2002.

Mr Mallard said the fall in asset values would add only $3.5 million to the Government's costs next year. Full details would be released this month.

Meanwhile, Green Party co-leader Rod Donald has accused the Government of gambling the life savings of public servants on overseas share markets.

He said Finance Minister Michael Cullen should have revealed the size of the loss before the July election and the Government had deceived voters.

"This loss is on a similar scale to the state of the BNZ before the 1990 election."

He said the result did not bode well for Dr Cullen's super fund, which would also invest internationally.

National's associate finance spokesman, David Carter, said the $315 million loss showed why Dr Cullen's fund should be invested in New Zealand.

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