NZ Super hopes to short sell
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.