Diversification of investments has great potential, says Head of N.Z. Superannuation Fund
Superannuation Funds tend to spread their risks across different investments in order to maximise the return for their members.
So says the Chief Executive Officer for the New Zealand Superannuation Fund.
Matt Whineray, who is in Samoa to attend the Pacific Islands Investment Forum, said this is why most Superannuation Funds tend to lend money to foreign companies who wish to make big investments in their respective countries.
“If you think about the local fund, they have got an investment portfolio and they are trying to spread their risk across a bunch of different things so that means they want to diversify across equities or loans and they don’t want to have all their eggs in one basket," he said.
“If it’s all linked to the local companies and there’s some shock in the local economy, then that means those investments are not going to go as well. So the idea of diversification, are those different sources of return that aren’t all going to be affected by the same economic impacts.
“So you get a bit of a spread across the portfolios and then that means the risk in the portfolio is lower and you’re better off.”
The Pacific Islands Investment Forum brings together heads of superannuation funds and financial institutions from the region and experts from development partners to discuss ways of effectively maximising return for investments as a collective.
Responding to a question during the forum yesterday on ways of making sure there’s a strong local financial sector locally that local companies can borrow money from, he said: “In New Zealand there’s a few different sources of funds for people so it just doesn’t have to come, we don’t do any lending, the banking sector is doing that.
“I think here in Samoa, you have S.N.P.F., which is obviously a provider of loans to local markets, and so those local companies are able to get those loans but also the National Provident Fund, its job is to earn returns for its members, so it needs to be thinking about the risk of the portfolio and having some different sources of return.
“That’s the balance they are trying to strike – that they are able to provide, respond to the demand in the local economy but not overload all of your risk to the local economy.”
Mr. Whineray said there’s a need for new infrastructural update in the region, which regional superannuation funds can invest in collectively and maximize their returns.
“[The investment] also has the added benefit of improving infrastructure across the Pacific, so increasing resilience to climate change or improving outcomes for local or national economy.
“The challenges are the treatment of investments across borders, so what restrictions are there for the fund in one country investing in another, tax is a challenge, how different funds are taxed in different ways, aligning objectives of the different funds and agreeing on things that you are going to go invest in.”
However, Mr. Whineray said none of these challenges are insurmountable.
“Lots of collective investment organisations around the world have gotten over that, it just requires the willingness to do that.”