KEY POINTS:
Most governments come to power with a lemon in their grab-bag of promises. National's is the proposal to direct the NZ Superannuation Fund to keep 40 per cent of its investments in New Zealand assets.
Hopefully this idea, sprung suddenly on the election campaign, has not acquired the status of a solemn promise. It has been panned by economic and financial commentators, and Prime Minister John Key's references to it since the election have been less categorical. The usual phrasing now is that he "would like" 40 per cent of the fund to be invested here.
If he needs a reminder of the risks a directive would invite, Auckland's mayor has just provided it. Inspecting work on the region's railways this week, John Banks became enthusiastic about the possibility of a rail tunnel from Britomart to Kingsland and saw it as a prime candidate for captive investment of the Cullen Fund, as it is better known.
It was established by former Finance Minister Michael Cullen for the express purpose of putting budget surpluses into a fund that might help future taxpayers meet the cost of the baby boom's retirement. It was to be administered at arms-length from the government and have a sensibly diverse investment portfolio. Nevertheless, critics contended it ran the risk of political interference. Some of the critics are now in a position to prove their point.
The Auckland underground railway is a classic political pipedream. It has been put to governments in one form or another since the 1960s, and rejected on cost-benefit calculations. Auckland is a sprawling region of diverse travel patterns and has three train lines, running east, west and south. Until recently the passenger services were run-down and thinly patronised, but since the construction of the Britomart terminal demand has grown.
Britomart was designed not to be a terminal. It is intended one day to have lines connecting it to the western line, perhaps as surface light rail or a tunnel to Kingsland. The options are still debatable. A few days ago a Regional Council member, Joel Cayford, criticised the Britomart to Kingsland idea, suggesting a line past the universities and the hospital would be preferable.
And such rail development is far from ready for the commitment of investment, particularly of a public superannuation fund that urgently needs to build and maintain its value. The first of the baby boom generation will qualify for the pension in two years. The peak will be arriving in about 10 years.
The Cullen Fund began investing in 2003 and performed very well until the United States credit crunch started in mid-2007. By January last year, the fund was down 6.63 per cent. This week it was disclosed that since August, when the US crisis turned into a worldwide financial seizure, causing sharemarkets and currencies to plummet, the fund has lost $2.8 billion, more than a quarter of its value.
This is not the time to be placing any sort of restriction on the fund's agility. It put its most optimistic foot forward when reporting the five months to November this week. December, it said, seemed better and sharemarkets picked up a little after New Year. The fund declared that as a long-term investor it is "positioned to withstand volatility and benefit from the investment opportunities that arise".
Let's hope so. Let's not compromise the fund's value and opportunities by imposing an arbitrary domestic investment ratio that politicians have plucked out of the air.
In the normal course of behaviour the fund has favoured domestic investments disproportionately to the economy's size. It does so probably because it knows the assets more intimately and sees prospects that foreign funds may miss. Whatever the reason, its judgment inspires more confidence than a government's rule of thumb.
