The New Zealand Superannuation Fund, dubbed the "Cullen fund" by National in Opposition, has been a political orphan for the past six years. National suspended annual contributions with the Budget in deficit and has no plans to put in more when it returns to surplus. The earliest the Government expects to resume contributions, if it is still around, is 2020. Until then, debt reduction or tax cuts have priority over finance for future pensions.
Undeterred, the Super Fund has made good use of the $15 billion put in by the previous Government, investing well when equity prices were low after the global financial crisis. Its assets, now valued at $27.5 billion, have grown at an annual rate of return of 9.95 per cent since 2003. Last year it achieved 16.71 per cent despite writing off $200 million after the collapse of a bank in Portugal.
The decision to invest in a Goldman Sachs loan to the Banco Espirito Santo just weeks before its collapse is the first embarrassing investment by the fund to be publicly disclosed and warranted an explanation. Chief executive Adrian Orr offered one to Parliament's commerce select committee last Thursday.
The Banco Espirito Santo (BES), Portugal's largest listed bank, looked to have a solid balance sheet last June, just before the fund decided to lend it US$150 million through a Goldman Sachs vehicle, Oak Finance. The fund covered its risk with credit default swaps also sold by Goldman Sachs. It sounds too much like the origins of the global financial crisis for comfort, but Mr Orr insists the insurance would have recovered the money had it not been for actions of the Bank of Portugal he called, "totally unforecastable and, we believe, illegal".
The central bank separated the solvent parts of BES from the insolvent and the debt to Oak Finance was put into the "bad bank" which made the fund's insurance instrument ineffective. According to Mr Orr, all other senior bondholders went into the new bank.
