Cullen defends Guardian's asset allocation

MP's question the Government in Parliament on the New Zealand Superannuation Fund's proposed investment strategy.

Friday, August 15th 2003, 7:39PM

3. Dr DON BRASH (National) to the Minister of Finance: In light of today’s announcement of the New Zealand Superannuation Fund’s investment strategy, does he believe that the Treasury’s original assumption of an overall long-term annual return of 9.4% on the fund is realistic; if not, why not?

Hon Dr MICHAEL CULLEN (Minister of Finance): Yes.

Dr Don Brash: Given that Treasury itself has acknowledged that there is no realistic way of judging the long-term outlook, that the expected rate of return has recently been revised down from that first proposed, and that the similarly structured Government Superannuation Fund has lost considerable sums on its investments over the last two years, why does the Government not simply retire some of its $35 billion of Crown debt, as any prudent homeowner with a mortgage would do?

Hon Dr MICHAEL CULLEN: The statement on the Government Superannuation Fund is incorrect, but the original question related to the superannuation fund’s investment strategy. The estimates by the guardians are extremely close to the original Treasury estimates, despite the fact there is a somewhat different mix of investments within the portfolio.

Peter Brown: What is the Minister’s attitude to investing some of this money in New Zealand’s infrastructure, such as roading and transport areas?

Hon Dr MICHAEL CULLEN: That is a matter for the guardians to determine the asset allocation policy. This will never be a fund that is at the whim of any Minister of Finance to use as a slush fund for things like silly “think big” projects.

Rod Donald: Can the Minister confirm that the guardians have established an ethical investment strategy that includes investing in anything that is legal, which could include such enterprises as armaments manufacturers, cigarette companies, alcohol companies, casinos, and even brothels; if that is the case, is he happy with such an investment strategy?

Hon Dr MICHAEL CULLEN: I think the member’s summary of the approach taken by the board is, in fact, not a fair one on ethical investment. In any case, at the end of the day it is up to the board of guardians to interpret their statutory responsibilities and to carry them out.

I repeat, one of the main purposes of the way the fund is structured is to stop Ministers of Finance determining how the fund should be invested.

Gordon Copeland: Does the Minister believe the investment of a mere one-fifth of the New Zealand Superannuation Fund in New Zealand could be viewed as a vote of no confidence in the future of the New Zealand economy, and therefore become a self-fulfilling prophecy by denying local companies access to capital; if not, why not?

Hon Dr MICHAEL CULLEN:The guardians are determined to invest 7.5% in New Zealand equities. The New Zealand equity market is 0.2% of the world total, so they are weighting New Zealand 40 times its world average.

Dr Don Brash: If the Minister is so confident that the fund will, over the long term, generate a much higher rate of return than the cost of the Government’s debt, why does he not borrow another $100 billion, or so, invest it in overseas sharemarkets, and use the income generated to cut everybody’s tax burden?

Hon Dr MICHAEL CULLEN: I think we have at last flushed out the member’s economic policy; it is to borrow for tax cuts, which is what I have said the National Party’s policy always has been.

Gordon Copeland: Does the Minister have concerns that the almost four-fifths allocated off shore carry an additional level of risk, given that New Zealand is the highest indebted country in the OECD, with resultant large annual outflows for interest and dividends; if not, why not?

Hon Dr MICHAEL CULLEN: Strictly speaking, in terms of when the fund comes to be realised, I think it is fair to say that appreciation of the New Zealand dollar is more of a worry than depreciation.

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