The New Zealand Superannuation Fund has slashed its custodian costs by NZ$2.5 million with the appointment of Northern Trust, according to figures just published.

In its annual Statement of Intent released last week, the New Zealand Super Fund estimated its custodian fees for the year to June 30, 2008, would total NZ$6.5 million, substantially less than the NZ$9 million budgeted for the previous year. The 2006/7 forecast included an estimate of NZ$11 million for custody and administration with NZ$2 million of that earmarked for administration and the remainder flowing to former custodian BNP Paribas, a New Zealand Super Fund spokesperson said. While the Fund has not yet released its actual costs for the year to June 2007, according to the 2005/6 annual report, it paid custodial fees of just over NZ$7 million in the 12 months to June 2006. Northern Trust replaced BNP Paribas on July 1 as custodian of the NZ$12.8 billion fund. As well as finalising the transition of assets to Northern Trust the New Zealand Super Fund also said it would investigate “a business case for accessing any further custodian capabilities and opportunities to gain new efficiencies outside the scope of the initial transition project”. While the Northern Trust appointment may have kept its custody fees in check, overall operating expenses for New Zealand Super have jumped from NZ$85 million for the year to June 2007 to a projected NZ$115.76 million in the coming 12 months. The forecast included fund manager fees of just over NZ$74 million (up from NZ$61 million the previous year) and a big increase in ‘other’ expenses from NZ$6 million in 2006/7 to NZ$23 million in the year ahead. The cost of managing the fund’s secretariat (the Guardians of the New Zealand Superannuation Fund) has also increased from NZ$7 million last year to a projection of almost NZ$12 million for the year to June 2008. A large part of that increase would be attributable to an intended increase in staff numbers from the current 30 to 40 over the next year. Despite the increase in expenses the Guardians have predicted an after-tax profit for the New Zealand Super Fund of NZ$954 million in the year to June 2008. However, the Guardians also issued a warning about declining returns for the Fund. Since inception the New Zealand Super Fund has returned 14.8 per cent per annum or 8.4 per cent above the risk-free rate of return. Originally the Guardians estimated the Fund would return an average 3.5 per cent above the risk-free rate and the Statement of Intent said “that continuing to generate more than 6 per cent p.a. above the risk-free rate over the next 10 years has a probability of only 15 per cent”. “Indeed, looking beyond the current period of rapid growth, the Guardians anticipate returns in the asset markets to become more unstable and decline. Therefore, the Guardians are continually focused on improving the mix of assets in the fund to boost returns, and in identifying highly skilled investment managers to add value from active management,” the Statement said.

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