NZ Su­per hopes to short sell

The Dominion Post - - Business - HAMISH RUTHERFORD

A fund set up to help cover the cost of New Zealand’s grow­ing pen­sion li­a­bil­ity wants per­mis­sion to use a tech­nique to profit when share prices fall.

In its brief­ing to Min­is­ter of Fi­nance Grant Robert­son, the New Zealand Su­per­an­nu­a­tion Fund said it was fi­nal­is­ing a re­quest for per­mis­sion to short sell phys­i­cal se­cu­ri­ties, typ­i­cally shares.

Of­ten dubbed ‘‘go­ing short’’, short sell­ing is a tech­nique used in fi­nan­cial mar­kets to make prof­its in the event that an as­set falls.

Typ­i­cally an in­vestor will bor­row shares in a listed com­pany from the owner, sell them, then buy shares in the same com­pany back later and re­turn them to the owner at a pre-agreed time. If dur­ing the process the shares fall in value, the in­vestor stands to profit.

As well as po­ten­tially prof­it­ing from fall­ing mar­kets or the poor per­for­mance of a par­tic­u­lar com­pany, the tech­nique can be used to re­duce risk.

While the tech­nique has been around since at least the early 17th cen­tury, it has at­tracted con­tro­versy. The prac­tice was par­tially banned in the United States af­ter it was blamed for caus­ing the 1929 Wall Street crash.

It was later blamed for caus­ing in­sta­bil­ity in fi­nan­cial mar­kets in 2008 dur­ing the global fi­nan­cial cri­sis, lead­ing to re­stric­tions in the US and Europe.

NZ Su­per is not ex­pressly pre­vented from short sell­ing.

How­ever, the leg­is­la­tion un­der which it op­er­ates puts tight lim­its on ei­ther bor­row­ing or of­fer­ing its as­sets as se­cu­rity, which are fea­tures of the tech­nique.

In a state­ment, NZ Su­per said per­mis­sion to short sell would mainly be used to re­duce risk.

‘‘Short sell­ing is com­mon prac­tice among in­sti­tu­tional in­vestors such as sovereign wealth and pen­sion funds,’’ a spokes­woman said.

The Auck­land-based fund man­ages about $35 bil­lion worth of as­sets, which will be used to par­tially fund gov­ern­ment su­per­an­nu­a­tion from the 2030s.

In its most re­cent fi­nan­cial year, the fund re­ported a re­turn of more than 20 per cent and has pre­vi­ously been ranked among the world’s best per­form­ing sovereign wealth funds.

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