NZ Super fund a year off investing

One of the best performing funds in New Zealand at the moment is also one of the biggest. The $1 billion plus New Zealand Superannuation Fund (aka The Big Cullen Fund) is currently earning 5.75% tax free. What's more the fund is experiencing positive inflows with the government contributing around $60 million each fortnight.

Technically the fund doesn't actually exist and the body established to run it, the Guardians, are in the process of developing an appropriate investment strategy.

The chairman of the Guardians, former Colonial boss David May, says this work won't be completed for about a year and he doesn't expect the Guardians to begin investing until September next year at the earliest.

Even at that point the Guardians may decide not to fully invest the fund (which will be sitting at more than $2 billion by then) if the markets continue to be volatile.

May says there are a myriad of issues for the Guardians to look at including asset allocation (strategic versus tactical), how much to invest in New Zealand, research, market entry strategy, hedging, use of alternative asset classes and whether to have active or passive management.

The Guardians are doing work on developing best practice standards for all these issues.

One of the biggest issues though is how to invest the fund ethically.

While the legislation establishing the fund does not prescribe how it should be invested it does say that the fund has to be invested in such a way as to avoid prejudicing New Zealand's reputation.

This is largely seen as being an ethical investment overlay.

May says it is one of the hardest things for the Guardians to determine.

"It's easy to say, but hard to judge."

The Guardians are currently conducting a search for investment managers, custodians, and a chief executive.

May says about 20 firms have responded to the request for advisers, and a search for a chief executive officer is underway.

The government has set aside $2.5 million this financial year to fund the Guardians (that equates to a management fee of about 0.25% based on the amount of money currently sitting in the account).