Fund issues $22b warning as markets tumble
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.