KEY POINTS:
New Zealand Superannuation Fund officials are not panicking after heavy unrealised losses due to instability on the international finance and equity markets.
Fund chief executive Adrian Orr told MPs it returned minus 1 per cent growth for the six months to last December.
This was $635 million less than the fund would have earned if it had invested in Treasury bills.
Mr Orr said the fund would also take a heavy hit in January, but was not yet ready to report the results.
Yesterday, Finance Minister Michael Cullen said the Government's headline operating surplus for the six months to December would fall from the predicted $2.5 billion to around $800 million, mainly because of the fund's performance.
Fund chairman David May stressed that it was in it for the long haul and the losses would not be realised.
"We are firmly focused on a long-term - 30-plus years - investment horizon, and anticipate a high degree of noise and volatility over short periods."
For the six months to December 2007, the fund was worst hit in its property investments (minus 7.02 per cent) and in equities (3.74 per cent). This was balanced by a 27.6 per cent positive return in commodity investments and 4.42 per cent in fixed income.
The performance was in contrast to the fund's first three years when it was well ahead of the Treasury bill benchmark.
Overall the fund's annualised return has been 12.68 per cent since it began operating in late 2003. This is $1.56 billion more than the fund would have received if it has just bought Treasury bills.
Mr Orr said the fund had considered pursuing alternative strategies since international markets got the wobbles over sub-prime mortgage exposure and recession in the US.
It had been decided that the fund had not been running long enough to pursue other investment options - such as buying more shares when they were low or trying to out guess the market by active selling and buying.
The fund might consider such investment strategies when it was more mature and larger in size. The fund has about $14 billion invested in New Zealand and overseas.
The fund had no direct exposure to the sub-prime mortgage market, but indirectly some investments - particularly shares in financial institutions - could be hit, Mr Orr said.
The Government is putting $2 billion a year into the fund to help to pay for future superannuation costs.
- NZPA
