Fund is­sues $22b warn­ing as mar­kets tum­ble

Taranaki Daily News - - Business - Hamish Ruther­ford

A re­peat of the global fi­nan­cial cri­sis could see the New Zealand Su­per­an­nu­a­tion Fund shed more than half of its value.

The sce­nario was laid out in the fund’s an­nual re­port yes­ter­day, ex­plain­ing that more than $22 bil­lion would evap­o­rate if the events of 2008-09 oc­curred now.

By co­in­ci­dence, it was re­leased on a day when global share­mar­kets tum­bled. The NZX 50 in­dex fell 3 per cent, drop­ping in re­sponse to a plunge in tech­nol­ogy stocks in New York.

NZ Su­per Fund chief ex­ec­u­tive Matt Whin­eray said the fund is­sued the warn­ing to en­sure that if mar­kets tum­ble, the pub­lic – and the Gov­ern­ment – does not lose con­fi­dence.

‘‘I’m just try­ing to make sure you all un­der­stand what’s in­her­ent in our port­fo­lio. I don’t know that there’s a fi­nan­cial cri­sis com­ing, and I’m cer­tainly not pre­dict­ing one, I’m just say­ing: ‘What would that look like if we ran through it to­day?’ ’’ he said.

Dur­ing the GFC, the fund lost more than 50 per cent of its value in a 10-month ‘‘peak to trough’’ pe­riod. How­ever, at the start of the crash the fund was worth $14b, com­pared with about $40b now, which Whin­eray said would gen­er­ate more at­ten­tion in a down­turn.

‘‘The num­bers get big­ger and the head­lines get more con­fronting. The risk is that we don’t have the dis­ci­pline and ca­pa­bil­ity, and that we lose the sup­port of our spon­sors [and that] broader stake­hold­ers – whether that’s the Gov­ern­ment or the pub­lic or the me­dia – don’t un­der­stand the ex­pected range of out­comes.’’

Un­der the sce­nario de­scribed by the fund, rather than pull back from its strat­egy of tak­ing on risk to at­tempt to max­imise re­turns over the long term, the fund would con­tinue to buy in the ex­pec­ta­tion that this was the right long-term strat­egy.

‘‘The times when the global econ­omy and fi­nan­cial mar­kets are in distress are those that present the best buy­ing op­por­tu­ni­ties for long-term in­vestors such as our­selves,’’ Whin­eray wrote in his re­port. He ad­mit­ted that al­though it was easy to de­scribe how the fund would per­form in a sharp cor­rec­tion, that did not mean it would be an easy ex­pe­ri­ence. ‘‘Peo­ple fear losses more than they like gains. When you’re try­ing to hold your risk pro­file when the mar­ket is fall­ing . . . after a while you start to ques­tion your­self.’’

Dur­ing the fi­nan­cial cri­sis, he said, ‘‘mar­kets were down a long way, and at that time ev­ery­one was say­ing: ‘You’re all a bunch of mup­pets; you should be in bonds.’

‘‘Well, if we’d gone into bonds at that point, that would have been the end of us as a fund.’’

In­stead, the fund bought growth as­sets through­out the GFC, mean­ing it was po­si­tioned to take ad­van­tage of the mar­ket gains that fol­lowed.

Matt Whin­eray

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