Super Fund Points To NZ Market Weakness
August 10th, 2009
The weaknesses of the tiny NZX market have been pointed out by the Guardians of the Superannuation Fund, who fear their investment power will have a major impact on the tiny NZX unless the market continues to grow in line with the fund.
The Guardians were responding to the Govt’s plans to direct the fund to allocate 40% of its money to domestic investments. The Guardians say the fund has already had to adjust the way it deployed cash to the NZ equity market to reduce the extent in which it would push up prices when buying. They say even to maintain the fund’s current exposure, the market must grow at the same rate as the fund. But rather than growing, the NZX-50′s market capitalisation had shrunk since the fund started investing in October 2003.
And allocating significant capital to the NZ private-equity market would be even more problematic as institutional quality offerings are few and far between. The problems are the same for the property and private market assets and the guardians warned the fund could be forced to become a “price taker” if it has to increase investment in property. They are also highly critical of the local bond market, noting that it is relatively small, illiquid, un-diversified and poorly priced compared with comparable credit opportunities globally.
The only area the guardians were really interested in was increasing investment in infrastructure assets, but even then they warn future Govts could face public resistance to the sale of local assets when it came to realising the investment. As of the end of May the fund’s assets were worth $13.1bn. The Guardian’s concerns highlight the dearth of quality investment products available in NZ and underline why NZ investors have for so long put so much of their cash into property.
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