Crown funds at their limit with NZ shares

Crown financial institutions, which include the NZ Super Fund, ACC and the National Provident Fund, are weighing up their level of participating in the New Zealand equities market.

Monday, January 21st 2013, 12:40PM

by Susan Edmunds

The Crown Ownership Monitoring Unit has released its annual portfolio report, covering the performance of commercially-driven state-owned enterprises, multiple-objective entities, such as crown research institutes, and Crown financial institutions - the entities responsible for investing crown funds.

Deputy secretary of the Crown Ownership Monitoring Unit Andrew Turner said the 2011/2012 year had been one of modest absolute returns. Poor equity market returns, particularly offshore, had been tempered by strong gains from fixed-interest securities.

“One aspect of CFI activity of interest is the level of participation in the New Zealand listed equities market and the scope that exists for greater or lesser involvement in New Zealand equities,” he said.

Although 7.61% of CFI funds are in NZX stocks, the total value of CFI funds has grown by 23% over the past 30 months, while the total NZX total market capitalisation has increased 1%.

The CFIs have $47.2 billion in funds under management, up from $45.3 billion in 2011. But investment returns were $2.3 billion in 2012, down from $6.5 billion in 2011.

Turner said the level of CFI holdings in the NZX was not considered excessive but there was a limit to the scale of assets that could be invested in NZX-listed companies.

The CFIs’ $47.2 billion under management would completely swamp the NZX, which has a market capitalisation of about $60 billion, of which only about $40 billion is freely traded.

“While the 2012 result was not strong in absolute terms, we note encouraging trends against passive benchmarks.”

Active management of CFIs is helping them to outperform passive benchmarks. The New Zealand Superannuation Fund was 2.5% up on passive benchmarks, helped by foreign currency tilting.

Overall, the CFI portfolio outperformed its aggregate benchmark by 0.6% after fees and costs. The report said it generated an additionally return of about $270 million over and above what might be expected of a passively-managed portfolio.

CFI had its biggest NZX holding in Auckland International Airport, with shares worth $464.5 million. That was followed by SKYCITY Entertainment Group, where the CFI holding is worth $200.4 million.

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