NEW ZEALAND - The NZ$5.75bn (e3.2bn) New Zealand Superannuation Fund is to increase its allocation to alternative assets and property to 20% by June 2007, and beyond that the allocation will rise to 35%.
The change, announced as part of a new strategic asset allocation, will be achieved by reducing the fund’s allocation to global listed equities. Currently the allocation to alternatives and property stands at 13%.
Alternative investments will include infrastructure, private equity, commodities, forestry and property.
The fund was set up to smooth the impact on government finances of funding the superannuation payments of an ageing population. The cost of providing benefits is expected to double over the next 50 years. The government is allocating around NZ$2.2bn a year to the fund over the next 20 years.
With its long term horizon, and no immediate requirement for liquidity, alternative assets and property are well suited to the fund’s requirement, said David May, chairman of the board of guardians of New Zealand Superannuation.
“We believe that by substituting a proportion of the fund’s present allocation to listed equities with illiquid, uncorrelated assets, we can lower the long-term risk of the fund, without compromising returns,” said May.
The current strategic asset allocation to alternative assets is 7%, which will rise to 13% in June 2007, and 25% beyond that. The current allocation to global large cap equities stands at 48%. It will reduce to 42.5% in June 2007 and 34.5% beyond.
May said the long implementation phase of the investment process reflected the challenges posed by investing in alternative assets.
“Developing appropriate access to those highly specialised sectors takes time,” he said. “In addition, considerable care needs to be taken in establishing the terms upon which investors commit funds in order to assure they are appropriately rewarded for the risk they take.”
The fund has appointed Sydney-based specialist advisory firm Quentin Ayers to review opportunities in private equity. The aim is to invest up to NZ$100m into New Zealand based private equity fund over the next three to five years.
Sydney-based infrastructure specialist firm Capital Partners will manage a global infrastructure mandate for the fund. Allocation to infrastructure is likely to be 2-5%, with a target of 3% in June 2007, as long as the sector remains attractive.
AMP Capital has set up a dedicated team to help institutional investors, including pension funds, invest in infrastructure through direct equity allocations.
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