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Market stress a reminder on saving for long term

Hon Dr Michael Cullen
Minister of Finance

29 September 2008 Media Statement

Global market stress is a reminder of the importance of saving for the long-term

The government's financial statements for fiscal year ended June 30, to be published by the Treasury next week, will fully incorporate the performance of the NZ Superannuation Fund, Finance Minister Michael Cullen said today.

“Not many investors in global equities would have avoided incurring mark-to-market losses in the value of their shareholdings late last year and in the first half of 2008. The New Zealand Superannuation Fund is no exception," Dr Cullen said.

"Times of stress and challenge in international financial markets are as good a time as any to reaffirm the importance of strengthening New Zealand's national savings performance and culture and to remember that long-term saving funds are just that, funds established for the long-term benefit of New Zealand," he said.

The Guardians of New Zealand Superannuation released their Annual Report earlier today and it showed that the Fund's net return on investments for the financial year was
-4.92 per cent before tax.

The Fund's annualised return since inception remains positive at +10.34 per cent, which is about 3.6 per cent above the rate of return that would have been achieved had the had the Guardians of New Zealand Superannuation instead invested solely in risk-free 90-day Treasury bills.

The Fund, which stood a little over $14 billion at June 30, compared with around $13 billion a year earlier, holds a significant ratio of its portfolio in global equities which have volatile returns within short-term periods while providing significant gains over thirty-year plus horizons. Market price weakness can provide investment opportunities for long-term investors like the Superannuation Fund, which is five years down its 30-plus year investment path and which no future government is expected to draw down from before 2025 at the earliest.

On Monday (6 October), the Treasury will publish the Financial Statements of the Government for the fiscal year ended June 30. The New Zealand Superannuation Fund is a significant, and growing, component of the Crown balance sheet. Month-to-month volatility in its valuation will have an increasing impact on the Crown's net worth but such short-term valuation volatility is fully anticipated given the Fund is invested in long-term risk-assets, including a significant portfolio in global equities.


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