The Guardians of the NZ$11.2 billion New Zealand Super have outlined a range of practical limitations to the Government’s proposal to double the fund’s allocation to domestic assets, in a confidential document made public recently under the Official Information Act.

NZ Super currently invests around 18 per cent domestically, with an additional 5 per cent in cash, however Prime Minister John Key has proposed increasing this to at least 40 per cent.

 In a December briefing to finance minister Bill English, obtained under the Official Information Act by current affairs website pundit.co.nz, the Guardians of NZ Super said while there were some “good reasons” behind a home bias in investment, there were also some “practical limits”.

“These include the investment opportunities, the depth of markets, impact on market pricing, and asset and country concentration risks that must be managed or compensated for,” the Guardians said.

“To increase the allocation to

New Zealand assets to 40 per cent by say 2018 would mean lifting the dollar sum invested from the current $2.2 billion to a figure ten times that size – a compound growth rate of 26 per cent per annum.”

The Guardians pointed out that the fund’s current allocations already represent a significant home country bias relative to the allocation the fund would make if it invested in a representative global wealth portfolio. For example, listed

New Zealand equities make up just 0.2 per cent of the global listed equity market.

Parts of the document, including the section on listed equities, were blacked out; however the Guardians outlined the challenges in finding suitable investments within a range of different asset classes.

On private equity, they said it seemed unlikely that there would be “sufficient flow of attractive transactions to make more than a very modest difference in the fund’s allocation (as a percentage of the total fund)”.

With regards to the prime commercial property market, the document noted that “the premier properties are generally tightly held” and other private market assets such as timber investments were “relatively rare”.

Infrastructure was listed as the “most difficult asset class to access in

New Zealand” due to a lack of opportunities for investment. NZ Super’s sole infrastructure investment is a holding in

Auckland International Airport, where it owns more than 10 per cent of the issued capital.

Speaking to I&T News, Adrian Orr, chief executive of NZ Super, said much of the infrastructure in

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