Let the battle begin

There's no points for picking this week's top news story - the New Zealand Superannuation Fund and how it invests our billions of dollars.

Friday, August 15th 2003, 2:02PM

There's no points for picking this week's top news story - the New Zealand Superannuation Fund and how it invests our billions of dollars.

There's plenty of interesting aspects to the fund's asset allocation strategy (and we will cover these over the coming week or so), but perhaps one of the most fascinating is that someone is countering the self-serving arguments from the New Zealand Exchange about how many of the funds billions of dollars should be invested in local shares.

NZX chief executive Mark Weldon has been arguing that a much higher proportion of the fund's assets should be invested in the local market (he first made the case for this in the March issue of ASSET magazine).

Much of his arguments are based on warm fuzzies and the need for home market bias.

Thankfully the chairman of the Board of Guardians, David May, has confronted Weldon's challenge and given him a simple message - you grow the market and we will give you more money.

It's now time for the NZX to get some real runs on the board.

Macquarie economists meanwhile expressed the converse to Weldon's argument. They suggested that the 7.5% allocation to New Zealand shares may be too high as the local market accounts for less than 0.2% of the world market capitalisation.

Another angle on the argument is May's contention that if a manager has more than 1.5-2.5% of the market they will become the market maker.

The last thing we need is the market being driven by supply and demand, as opposed to fundamentals. (The real winners out of this would be people who own shares and options in NZX!)

Macquarie says that the fund's initial allocation of around $180 million is about 0.4% of the NZX's current capitalisation, so it won't take too many years until the fund breaches that crucial market maker threshold.

Superficial arguments promoted by people who should know better do nothing to help the debate.

The great advantage of this fund is that - with a bit of lateral thinking - it could be used as a great tool to educate the public about investment issues (Let's start with Greens co-leader Rod Donald).

Here's another question to ponder. National Party finance spokesman Don Brash has again talked about the need to cut the costs of the state pension. If the Government chose to introduce a bill which raised the age of eligibility would National and Act support it?

If they did then we could say that the political football of superannuation had been consigned to an exhibition spot in the New Zealand Sports Hall of Fame.

See stories:
Home market bias in Super Fund
Guardians defend their allocation
Our money, their gamble, our loss
Background Q&A
Cullen on NZSF investment strategy
NZ Super Fund announces asset allocations

Quotes of the week
"We had a serious glitch."
David May's description of the premature annuouncement of the NZ Super Funds asset allocation on its website.

"If they stuff up their investments as badly as they've stuffed up our strategy, then God help us."
Greens co-leader Rod Donald's (predictable) response.

« Guardians defend their allocation

Sovereign takes regulation bull by the horns »

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