Portugese investment not misguided: Orr

NZ Super Fund knew what it was doing when it made a $200 million investment that has since been lost in the collapse of a Portuguese bank, its chief executive says.

Monday, July 13th 2015, 6:00AM

by Susan Edmunds

Adrian Orr was on TVNZ’s Q&A programme yesterday.

The money has been “conservatively” assumed lost after Banco Espirito Santo failed. Its president was arrested as part of a criminal investigation.

The US$150 million Oak Finance loan was made in July last year.

When Banco Espírito Santo failed a month later, the Oak Finance loan was placed in a successor bank, Novo Banco, that kept the collapsed lender’s good assets.

But in December, the loan was moved by the Bank of Portugal to the “bad bank” of the lender, which holds assets to be liquidated.

The NZ Super Fund is part of a group including Goldman Sachs, which arranged the loan, suing the Central Bank of Portugal over their loans being excluded from the bank’s bailout.

Orr disputed claims that the Super Fund should have stayed away from investing in Portugal. He said the risk had been well contained.

“You’ve always got to say you’re investing; you’re looking for opportunities; you go to places where those opportunities are greatest where you understand the risk. That investment, I mean, just to put it in perspective, it’s less than, I think, a quarter of 1% of the total portfolio was actually in the most low-risk part of our portfolio."

He said the situation was “one out of the box” and not something that could have been predicted. “The Portuguese Bank still has our money. Our insurance on that money still exists with the Portuguese Bank. What they have done, it appears, is acted unlawfully and put the loan back in the bad bank. We were treated totally different to other global investors. If you took that example and multiplied it across the world, that’s how it works, financial markets wouldn’t exist.”

Orr said NZ Super Fund was “always worried” about the potential for damage as a result of the recent sharemarket fall in China.

“You know, we actively chase concern. We’re looking for risk where there’s the opportunity. With regard to China, without doubt, growth is slowing and the nature of growth is changing.”

He said that would affect global commodity prices. But he said even though sharemarkets there had come off by more than 30%, year-on-year they were still up around 50%.

He said he was not worried about contagion risk as a result of a possible Greek exit from the EU and the NZ Super Fund could still see value in European markets.

‘If the worst outcome happens, where the actual banks default, the European Central Bank is absolutely prepared and capable to stand in and stop the contagion to other countries. That won’t stop markets overreacting, and we’ll certainly be watching and waiting for opportunities when that happens.”

Tags: NZ Super Fund