Danger when politicians play with our nest egg
Since it was established, politicians of almost all parties have been offering views about what the Super Fund should, or should not, invest in. Set up to help cover New Zealand’s future pension needs, so far it has largely resisted political pressure, but this is something which needs to be guarded against.
While he was still in Opposition, John Key issued statements that the fund should be used to increase investment in infrastructure. Former Labour leader David Cunliffe raised the idea of a dedicated pool of money being used to buy assets such as farms.
As well as giving continual instructions on which companies the Super Fund should or should not be investing in on ethical or environmental grounds, the Green Party at one time proposed a KiwiSaver fund to be run by the Super Fund.
Telling the fund what to do is easy while in Opposition, but rare in Government, although it has happened once.
In nine years in Government, National gave it a single directive, but the wording was so vague that it is impossible to track whether it was being followed. In May 2009, finance minister Bill English wrote to the chair of the fund to say that the Government’s ‘‘expectation’’ was that, in the course of being run in a commercial and prudent way, the fund should ‘‘identify and consider opportunities’’ to increase the share of the fund invested in New Zealand.
The fund will say it did what it was told, highlighting resources it has thrown at identifying possible targets, as well as a list of investments. But its development since shows it has not been preoccupied with following the order.
When English gave the direction, about 21 per cent of the Super Fund’s assets were in New Zealand, compared with National’s hope that it would ultimately increase to 40 per cent. However, a sharp climb in the value of global sharemarkets since means that, while the total value invested in New Zealand may have increased, the proportion invested locally has dropped to 15 per cent.
Now, Labour appears to be considering giving NZ Super a very specific direction, to invest in a very specific way such as no politician has tried to do before. While no-one from the Government is prepared to discuss the plans, it is understood that Economic Development Minister David Parker wants the fund to set aside hundreds of millions of dollars to be invested into early-stage companies – often referred to as angel investment.
The amounts of money being discussed could easily be seen as small in the scheme of the fund’s overall size (about $40 billion before the recent market turmoil) as well as the fact that, after years of no contributions under National, Labour has restarted investments, committing to give the fund billions of dollars in the coming years.
As an idea it is not an unusual one, with a lack of capital for early-stage companies often raised as a problem in New Zealand’s financial markets.
In 2016, Spark chief executive Simon Moutter launched a plan for major companies to join to create a $100 million venture capital fund in response to low levels of investment in research and development. This was later shelved because of a lack of interest from other companies and organisations, including the Super Fund.
Leaving aside whether there is a lack of money for early-stage companies – a view which is not universally held in the industry – there are bigger issues for the Government to consider.
Having politicians direct the investments of the Super Fund is dangerous territory. Such a directive, were it to be given, would call into question the independence of the fund, which could easily become a political tool if politicians were able to use their influence to change investment decisions.
Once the door to political influence is opened, it will be difficult to close again, and each idea from Parliament is likely to be more questionable than the last one. There is also the question of what effect such a directive would have on the investment market. Supporters of the idea of a major new early-stage venture capital fund seem to be under the impression that having the Super Fund involved would encourage other possible investors, including those overseas. The Super Fund already has pockets that are plenty deep enough to find the money to invest in venture capital.
It has an existing directive from a former finance minister to ‘‘identify and consider opportunities’’ to increase investment in New Zealand. So far, it has resisted doing so. What signal will it send to possible co-investors if the fund is now dragged, against its will, into this area of investment?