The New Zealand Superannuation Fund, also known as the Cullen Fund, is back in the news in the last week with suggestions it could buy stakes in state assets that may be sold after the next election.
Chief Executive Adrian Orr has even commented that the fund could buy groups of farms.
The fund was set up in 2003 by then Finance Minister Michael Cullen during a time when government debt had almost been repaid. It was designed to 'pre-fund' pensions to be paid to a surge of Baby-boomers due to retire from 2020 onwards. It has built up NZ$16 billion and returned 6.23% on average after fees (but before taxes) since its inception. That is in line with the risk free rate of return over that period and beneath the fund's own target of beating the risk-free rate by 2.5% per annum on average over rolling 20 year periods.
Last year the government suspended contributions to the NZ Superannuation Fund on the grounds it made better financial sense to not issue debt than to raise debt and then hand the cash on to the fund.
But the fund is continuing to manage the NZ$16 billion it already has.
The question now is whether the government should resume its payments to the NZ Superannuation fund at some stage, or even whether the fund can be justified during an extended period of government deficits.
The government is currently borrowing around NZ$250 million a week to fund its deficit. The government can raise its debt at around 5% at the moment. The fund, meanwhile is aspiring to earn more than 8%, but has achieved just over 6% so far.
The question then is whether it's worth the potential risk of under-performance to keep contributing to the fund or simply use the money to repay debt.
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