NZ News 26/10 – Super fund baits overseas managers

26 October 2000

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.

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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 indicated 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 international bonds and equities.

Fund managers approached byMoney Managementsay 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 will 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 negotiate much lower fees," Tume says.

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

Deputy head of BT Funds Management (NZ), Mike Newton, agrees that a large proportion 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 opportunity, BT will still compete for managing the international assets.

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 proposed 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.

Association for ethics

A new body for New Zealand investment professionals has been formed with the aim of supporting high ethical standards in the investment management industry.

The New Zealand Society of Investment Professionals (NZIP) has been established as the local chapter of the international organisation the Association for Investment Management and Research (AIMR). The AIMR has 43,000 members in close to 100 countries.

President of the NZIP and head of William M Mercer in New Zealand, Louis Boulanger, says the new body is a result of the growing globalisation of the investment industry and the increasing demand for the Chartered Financial Analyst (CFA) credential.

"The society will work to promote the highest level of investment ethics and education among industry professionals working in increasingly global capital markets," Boulanger says.

"The CFA designation is a symbol of that integrity, as charterholders must comply with the AIMR's code of ethics, requiring them to always place the client's interests first; maintain independence and objectivity; and serve with integrity and honesty."

He says the New Zealand market is particularly in need of ethical standards as it is lightly regulated compared to most other countries.

Boulanger says while no financial planners have joined the organisation however

some have shown interest.

New chief for FPIA

Phillip Matthews has been named as the first permanent chief executive the Financial Planning and Insurance Advisers Association (FPIA).

Matthews, currently vice-president of the FPIA, will move from Auckland to take up the Wellington-based position in November this year.

FPIA president Andrew Charles says Matthews is in the process of resigning as vice-president and is likely to sell his planning practice to focus on the new full time position.

Charles announced the FPIA's intention to appoint a permanent CEO for the organisation at the annual conference in July this year following the agreement by several fund managers to fund the position for three years.

"We're in a position to make this appointment thanks to the sponsors: AMP, BT Funds Management, Sovereign, AXA, Royal and SunAlliance and Armstrong Jones," Charles says.

He says the new CEO will aim to increase membership, build better relations with government departments, improve the education process and raise the public profile of the FPIA.

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