NZ super money to head offshore

New Zealand’s funds management industry says overseas-based fund managers may snare most of the business for the Government’s proposed superannuation fund.

New Zealand’s funds management industry says overseas-based fund managers may snare most of the business for the Government’s proposed superannuation fund.

The fund is predicted to grow to over $100 billion, or more than half of the nation’s GDP, in about 30 years.

Finance Minister Michael Cullen has announced details of the independently managed superannuation scheme that will be funded out of Government surpluses.

He says the Government has already set aside $3.6 billion to fund the proposed scheme over the next three years but over the next 10 years surpluses of at least 1.7 per cent will be necessary.

While the minority Labour Government hopes to have the fund enshrined in legislation this year, it is not yet guaranteed enough support in Parliament. The Government has in-dicated it will proceed with the fund whether it gets the legislation or not.

Independent managers will be appointed to the fund to invest in a range of local and in-ternational bonds and equities.

Fund managers approached by Money Management say that while the fund will provide opportunities for them it is likely overseas-based managers will benefit the most.

Head of funds management at Bank of New Zealand (BNZ) Investments and Insurance, Mark Tume, says the size of the fund will mean a large proportion of its assets would probably have to be invested offshore to avoid swamping the local market.

“It would make sense for the fund to negotiate directly with managers offshore rather than access international funds through a New Zealand fund manager, as it could negoti-ate much lower fees,” Tume says.

However, he says there will probably good opportunities for local fund managers to look after the superannuation fund’s New Zealand equities and bonds.

Tume says BNZ is keeping a close eye on the situation as more details of the fund are released.

Deputy head of BT Funds Management (NZ), Mike Newton, agrees that a large propor-tion of the fund would most likely go offshore if it was to meet its projected annual return of nine per cent.

“It is not possible to invest in New Zealand alone and get that return,” Newton says.

He says BT will “be there boots and all” when the tender process for managing the scheme’s assets begins.

Newton says while the New Zealand equities mandate for the fund presents the best op-portunity BT will still compete for managing the international assets.

“The opportunities will depend on the Government’s attitude to asset allocation but we will be there whatever,” Newton says.

Head of William M Mercer (NZ), Louis Boulanger, says if the superannuation scheme gets established more overseas fund managers may start setting up shop in New Zealand.

He says global players have long viewed New Zealand as a potential market and the pro-posed Government superannuation fund may trigger more activity.

“I was at a conference in Chicago recently and I was surprised at the level of interest some of the major players showed in New Zealand,” Boulanger says.

In an unrelated move, the Government has also introduced legislation to free up man-agement of the Government Superannuation Fund (GSF).

The GSF, which funds the superannuation payments of government employees, is cur-rently run in-house by the Treasury and only deals in government and low-risk corporate bonds. The new legislation would open up the fund to the private industry.