Crown may invest privately

Crown financial institutions hold a 15.6% stake in gumboot maker Skellerup Holdings. Photo supplied.
Crown financial institutions hold a 15.6% stake in gumboot maker Skellerup Holdings. Photo supplied.
Investment options for the Crown financial institutions in publicly-listed New Zealand companies are close to saturation point and the institutions may look for private market opportunities in which to invest.

The Treasury's Crown Ownership Monitoring Unit report shows that Crown financial institutions (CFI) have shareholdings in 96 of New Zealand's 150 listed companies.

The CFIs include ACC, the Government Superannuation Fund, the National Provident Fund and the National Superannuation Fund.

At June last year, there were 47 listed companies where the combined shareholding by the CFIs across the portfolio exceeded 5% of issued capital - excluding Air New Zealand where the Crown holds a non-traded majority holding of the shares on issue.

Of those 47 companies, there were 17 where the combined holding exceeded 10%. Only two individual CFI holdings exceeded 10% at the end of June.

Crown Ownership Monitoring Unit deputy secretary Andrew Turner said that at the end of the period, the CFI portfolio held invested assets totalling $47.2 billion. That included Crown-owned companies.

The institutions invested across domestic and international markets to try to achieve their respective investment objectives.

The market capitalisation of the New Zealand listed equity market - the NZX - was about $60 billion, of which only $40 billion was freely traded.

''Comparing this to the funds under management across the CFI portfolio means there is limited scope to invest a significant proportion of CFI assets in the NZX,'' he said.

''In light of this, if the CFIs look to extend investment in the domestic market, they will have to look for appropriate private market opportunities in which to invest or consider investing on a more passive basis.''

The unit did not regard the current level of aggregate CFI holdings in the NZX, or the total dollar exposure, as excessive, Mr Turner said.

However, there was a limit to the scale of assets that could be invested in NZX-listed companies, especially where CFIs were seeking to add value through active management, as each of them looked to do at present.

Craigs Investment Partners broker Chris Timms said the investment by the CFIs demonstrated the ''smallishness'' of the domestic listed market.

Brokers took it as positive the institutions were prepared to support New Zealand companies but they would be careful not to over-expose themselves to the companies.

''Normally, a large holder in a stock will always cause concern if they are not there for the right reasons. But the institutions are not short-term players and are not wanting to move the price around a lot.''

Selling out of a company could cause problems. The institutions owned 15.6% of Skellerup Holdings, he said. If they decided to exit the stock, they had the ability to move the market considerably.

''It is good for the institutions to be invested in local companies but as the market is reasonably small, it will always be an issue,'' Mr Timms said.

Mr Turner noted that the Crown's portfolio of commercial and financial investments made a modest return in the year to June 2012, in the context of uncertain business environments.

For the Crown financial institutions, strong gains from fixed-interest securities offset poor equity market performance so that overall, they made modest returns. The funds performed well relative to benchmarks, indicating that active investment strategies had been added.

In the commercial priority group of companies, total shareholder return and dividend yield were both lower than in 2011, he said.

In addition to the challenging business conditions, the unfavourable hydrological conditions also adversely affected portfolio performances, because the portfolio had a large weighting to energy sector companies.

''Given the tight fiscal position that New Zealand faces in the context of ongoing challenges in the economic environment, efficient and effective balance sheet management is critical. That ability of commercially-focused companies and the CFIs to create value and then, where appropriate, make that available for Government priorities is more important than ever,'' Mr Turner said.

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