Cage fight! NZ Super Fund vs South Canterbury Finance

Governments like to portray themselves as sensible and prudent investors of those hard-earned taxpayer dollars. Unfortunately the real-world imperatives of acting like dicks and lubricating the loyalty of narrow voter bases tends to rather undermine this image of a boring-but-conservative Uncle who’s wisely counting every penny.

Take, for instance, the comparison between Bill English’s decision not to invest in the NZ Super Fund – which has a proven record of delivering above-market investment returns – and instead piss a big chunk of cash into that poisonous rat-hole known as South Canterbury Finance – which has a recent track record of losing every dollar it can. Let’s see how that played out.

First up, the NZ Super Fund, now a $19 billion colossus astride the investment landscape. in 2010/11 it made a 23.04% return on investment, all without resorting to calling up Mark Hotchin and asking him for contributions to a Ponzi scheme. Bill English decided that investing in a proven winner wasn’t really his style, so declined to stump up with the government’s contribution of around $2 billiion.

Basic maths will tell you that New Zealanders have missed out on a return of $460 million this year by not throwing that $2 billion at the Super Fund’s stellar managers. Bill’s dumb-assed reason for not investing was that he’d have to borrow the cash to do it, which would have added to the deficit and incurred interest costs … of about 5.5%. So he’s thrown away $460 million so he could save $110 million – well done Bill!

Instead, he decided to bail out South Canterbury Finance’s many investors, to the tune of about $1.8 billion – you’ll notice that this is within the ballpark of the figure he decided not to add to the Super Fund’s coffers. The dust has yet to settle on this particular fiasco so the total losses won’t be known for a while – other than to say that they’re going to be ugly.

To date the loss estimates are running around $1.2 billion – but wait, there’s more! If Bill had to borrow to put money into the super fund, he would also have had to borrow to pay off Torchlight and co – he sure didn’t find the cash down the back of Treasury’s sofa – which adds another $66 million to the total, assuming we’re only paying interest on the losses, rather than the total.

Imagine the scene:

Treasury: “We recommend you put a couple of billion into the Super Fund because those guys really know where their towel is, and we’ll make stacks for the New Zealand taxpayer even after interest costs …”

Bill: “Nah, doesn’t suit the lobbyists. Got anything that pisses away a billion or two so I can buy a few votes?”

Treasury: “There is this one company that’s in breach of its obligations under the Retail Deposit Guarantee Scheme …. “

The rest, as they say, is history.


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