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Speech Excerpt from Mr Adrian Orr, Chief Executive Officer, on looking beyond the credit crunch

Auckland (24 September 2008) - Speaking today at the annual INFINZ Conference in Auckland, Adrian Orr, Chief Executive Officer of the Guardians of New Zealand Superannuation, made the following comments.

"We live in interesting financial times, which are both dramatic and unsettling. However, as a long-term investor, the New Zealand Superannuation Fund remains disciplined in our investment strategy and will resist any knee-jerk reactions. 

We release our June year financial results on 29 September.  Given our monthly disclosures, it will come as no surprise that over the course of that year we printed a negative return. And, the environment has got tougher since. 

Our negative return reflects widespread declines in global share prices, driven in large part by financial stability concerns.  The causes and consequences of these events are well versed, with their origins in poor bank lending practices in the US to households who are struggling to repay their loans.  

The New Zealand Superannuation Fund holds a broad portfolio of global shares, which includes financial institutions. Our direct exposure to financial sector shares has been less than 10% of the Fund. However, the specific companies that have attracted much of the media attention recently have made up only a small proportion, that is, less than 1% of the Fund. These include Lehman Bros, AIG, Morgan Stanley, Goldman Sachs, Bear Stearns, Merrill Lynch and HBOS.  And, we have deliberately spread our operational risks, which minimised our direct exposure to the Bear Stearns and Lehman Bros collapse, and the AIG bail out, to less than 0.1% of our Fund.

By far the biggest impact on Fund returns has been due to the indirect effects of the recent financial market turmoil.

We warned that the strong positive returns of previous years would not last.  However, even after accounting for these dramatic events to date, the Fund's five-year average return - a  more relevant performance measure for a long-term investor like us -  remains both comfortably ahead of our comparator risk-free rate, and well in line with our expectations stated at the inception of the Fund in 2003.

Our investment activity has also added value to the Crown's balance sheet, providing returns in excess of an equivalent passive portfolio. The value-add reflects our efforts to invest in both listed and unlisted assets, and seek best-in-class investment managers. This leaves the Fund in a better position to help buffer the future rising cost of superannuation. 

And, as a young fund only now coming up for our fifth year investment anniversary, we still have the majority of our investment ahead of us. The current financial and economic environment presents both challenges and opportunities.

We continue to focus on maintaining a highly diversified portfolio, and on evaluating new investment opportunities as they arise - which are on the increase as our liquidity becomes a rare commodity. We are also exploring strategies that allow us to 'lean against the wind', and increase our exposure to investment classes like shares or bonds that appear good value.  For example, right now, globally many company stock prices are low relative to many reasonable estimates of their underlying earnings potential. 

But, we do not under-estimate the seriousness of the current financial and economic challenges. For over a year now we have been investing in the shadow of the global 'credit crunch', which moved into a 'liquidity crisis' and is now a 'solvency crisis'. 

We take some lessons from previous business cycle swings and past financial crises, which are far more common than people care to remember.  Since the 1970s alone we have experienced commodity price and equity price shocks, the US Savings and Loans and the UK banking crises of the 1980s and early-1990s, the Asian Financial Crisis of the late-90s, and European and Latin American banking, currency, and economic crises.  Each event brought its unique challenges, solutions, and eventual recovery. In general, however, the stats show that it was the long-term investor who kept their nerve that came out ahead.

At this juncture, we also observe that there is clear problem identification, and an enormous global resolve and urgency to fix things.  And, with emerging economies still growing strongly, this is a relatively positive starting position for investment returns to recover. 

The timing of a financial and economic correction is anybody's guess.  For our part, we skip such guesswork. Instead, we have deliberately focussed on positioning the Fund from the outset to weather financial and economic storms.  The New Zealand Superannuation Fund has a clear long-term goal, a deliberate investment strategy, and a governance structure and liquidity profile to manage significant market volatility.  We will be disciplined to stick to our strategy and complete our task."

- Ends -

Contact details regarding this release: Karine Fox, Head of Communications, New Zealand Superannuation Fund, 09 373 8963, 021 351 141,