RPRC on NZ Super Fund

November 14th, 2011 at 10:00 am by David Farrar

The retirement policy and research centre at Auckland University has published its annual review of the performance of the NZ Super Fund.

This helps inform us for the election, as Labour’s policy is to borrow an extra $6b off China and have the invest the majority of it on international sharemarkets. Not even the fact that Europe stands on the brink of financial disaster, has put Labour off their borrow to save policy.

The compare the returns from the NZSF against the “risk free hurdle rate” of the yield on ten year government stock at the start of each financial year. This measures whether the NZSF has actually made NZ better off financially.

They find that as at 30 September 2011, the NZSF has made $1.22b less than the ten year government bond rate.

So why are Labour persisting in arguing that we should borrow money to contribute to the fund, when that was never its intention as set up by Cullen. Our priority has to be to get our debt down first.

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15 Responses to “RPRC on NZ Super Fund”

  1. thedavincimode (6,590 comments) says:

    … but,[ splutter, cough ] this can’t be right!! The Christianity implementation expert said it returned 25%!!!

    He wasn’t telling a bare-faced lie was he?

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  2. BeaB (2,084 comments) says:

    I suspect Labour will look back on this election campaign as one of their worst ever. A new low in their dismal economic record.
    Is it true they have dumped the daft Working for Families extension to beneficiaries?

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  3. JamesS (352 comments) says:

    “Less is more” certainly applies to investments because it is simply impossible to obtain large returns if your investment fund is a great deal of money.

    If you have $200,000 to invest and you do your homework and directly manage your investments you can obtain a very good return on that capital whereas if you have $100 million or $1 billion the returns will be negligible in percentage terms.

    The reason is simple; we have all heard of the saying “buy the worst house in the best street” and if you do that, make improvements and sell it you will earn a large return on your investment.
    However it logically follows there is only one ‘worst house in the best street’, which can be purchased with, say, a $200,000 capital (plus a mortgage).

    However if you had $100 million or $1 billion what you would invariably end up doing is not just buying the worst house in the best street – your ‘good’ investment which will generate the best return – but half the houses in the entire suburb!

    In other words simply buying shares or property for no other reason than you are a fund manager and your job is to buy investments because the last thing you need is a billion dollars sitting in your trust account leads to low (or no) returns to investors.

    This is something that Cullen and incompetent and negligent fund managers will never understand.

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  4. B A Waugh (98 comments) says:

    Firstly the markets are quite sick at the moment which means that it is a good time to buy. During the current turmoil people bail out of stocks due to fear. I would say that shares are currently on special.

    Secondly you should never look at short term performance an investment which was good last year may do poorly next year. So long as the overall trend is improving you are doing fine.

    However when you borrow money to invest in the fund you will have to pay it back. So the overall gain is much smaller.

    The best solution for the Super Fund is to get back into surplus before continuing to invest cash. New Zealand can not run it’s super fund like hedge fund and Warren buffet is not managing our money for us.

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  5. thedavincimode (6,590 comments) says:

    “Warren buffet is not managing our money for us.”

    Pity

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  6. ben (2,414 comments) says:

    So why are Labour persisting in arguing that we should borrow money to contribute to the fund, when that was never its intention as set up by Cullen.

    Because it does not pay the rational median voter to become informed on the plain silliness of the idea. It would be silly whatever Cullen’s view was when he set it up.

    B A Waugh writes:

    Firstly the markets are quite sick at the moment which means that it is a good time to buy.

    I rest my case.

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  7. joe90 (273 comments) says:

    Buffett buys.

    http://www.bloomberg.com/news/2011-11-07/buffett-broadens-portfolio-by-spending-23-9-billion-in-quarter.html

    Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) invested $23.9 billion in the third quarter, the most in at least 15 years, as he accelerated stock purchases and broadened the portfolio beyond consumer and financial-company holdings.

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  8. burt (8,036 comments) says:

    Firstly the markets are quite sick at the moment which means that it is a good time to buy.

    Lets ignore the gambling with public money thing… Lets just put millions of tax payers money on the horses each week. Hell one has to win every race and if we place enough bets some will win….

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  9. burt (8,036 comments) says:

    So why are Labour persisting in arguing that we should borrow money to contribute to the fund, when that was never its intention as set up by Cullen. Our priority has to be to get our debt down first.

    Because they have an ideology – no brains, no common sense and no credible understanding of markets – just an ideology.

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  10. backster (2,123 comments) says:

    “Firstly the markets are quite sick at the moment which means that it is a good time to buy.”

    There may be an element of truth in that statement if one wishes to gamble with his own money without borrowing to do so…It is a stupid philosophy when a trustee is borrowing money to set up an account for lifetime savings of working people.

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  11. burt (8,036 comments) says:

    backster

    Exactly the point. Socialists and their sense of entitlement to other peoples money – it’s OK to borrow for speculative investments in troubled times when you are never accountable…. scum.

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  12. Bevan (3,965 comments) says:

    Firstly the markets are quite sick at the moment which means that it is a good time to buy. During the current turmoil people bail out of stocks due to fear. I would say that shares are currently on special.

    And what happens if the company invested in tanks completely? Investing in stocks while the market is on the way down is actually a good idea but the general rule that you don’t invest money you can’t afford to lose springs to mind – is NZ (or Labour) willing to lose all the money they are investing? Maybe some journalist would like to ask them that (I wont hold my breath!) And while I am prepared to risk my own money (own money, not borrowed) on that kind of risk like hell will I trust anyone else to invest for me in the current circumstances.

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  13. swan (659 comments) says:

    “So why are Labour persisting in arguing that we should borrow money to contribute to the fund, when that was never its intention as set up by Cullen. Our priority has to be to get our debt down first.”

    So why are National not liquidating the existing fund to pay down debt? Other than status quo bias, it’s exactly the same argument.

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  14. Michael Littlewood (15 comments) says:

    Swan

    You are quite right. National’s decision to retain assets in the NZSF in the presence of debt on the other side of the nation’s balance sheet is the same in principle as a decision to borrow to raise new contributions. So governments have been wrong about this since the NZSF started in 2003. Investing money from ‘fiscal surpluses’ (AKA ‘too much tax collected) is no better. Repaying debt (or reducing taxes) is more sensible.

    At least the government is not worsening the position as Labour intends. Borrowing another $6 billion is impossible to justify. Keeping $16 bn in financial assets is just as difficult to justify. Having the government as 50% owner of a string of petrol stations highlights the disconnection. Effectively borrowing money to do that is just not a good investment decision; but that’s what we taxpayers have done.

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  15. SPC (5,473 comments) says:

    The point of the Super Fund is to account or provide for a future cost – to not do so is negligent.

    No company would pay off debt and then with the lower debt costs pay higher dividends, it would be providing for the future obligation – the government and tax paid super is a future liability.

    Of course it would be more appropriate to provide for this by establishing a dedicated contribution – 2% from employees and employers each year would be about right.

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