GSF performance OK'd

Parliament's Finance and Expenditure Select Committee examined the performance of the Government Superannuation Fund and concluded its strategy of investing offshore was satisfactory.

The $2.4 billion fund that provides pensions to public servants hit the headlines several months ago when Greens co-leader Rod Donald used its losses in international shares to push his case for investing in New Zealand.

Until recently all of the fund was invested in bonds and cash, however the Government changed its mandate so it could hold a diversified portfolio.

The idea of the change was to reduce the fund's cost on the Government.

Currently only about a third of the fund's liabilities are covered by its assets and the Crown has to pick up the slack. A diversified portfolio is expected to produce higher returns than cash and bonds over the long term, therefore reducing the cost on the Crown.

However, that strategy hasn't worked in the past year.

The fund has sifted about a third of its assets into international shares and suffered a $242 million unrealised loss on that part of the portfolio in the 12 month period ending June 30, with much of this loss occurring in the June quarter.

Since then the fund has lost another $135 million in the three months to September 30, but pulled back another $96 million in October.

Consequently the unfunded liability of the fund, as at June 30, has increased by $436 million to $8.9 billion.

The select committee suggested the timing of the fund's entry into international shares was wrong, however the GSF Authority, which is responsible for the fund, disagreed.

"At the time of investment, the international equities market was at a level approximately 30% below the previous peak (which had occurred two years earlier). It therefore appeared reasonable to believe that the market decline would soon end, the investment value would rise, and this was therefore an appropriate time to invest in international equities," the FEC report says.

"In hindsight we can see the Authority was unfortunate to enter the market when it was subject to its worst performance since 1929, but this could not have been foreseen."