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More than half of the value of the New Zealand Superannuation Fund could be wiped if there was a repeat of the global financial crisis, it has been estimated.
In its annual report released yesterday, the Super Fund, which was set up in 2003 to help fund the future cost of providing New Zealand Superannuation, has modelled how much it could lose if another financial crisis were to hit.
If the global financial crisis was repeated it estimates the fund could lose $20.3 billion or more than half (52.6%) of its current $39.4 billion value, over a 10-month period.
This comes as the global markets took a hammering overnight on Wednesday, the Dow Jones, in the United States, shedding more than 600 points.
The impact was also felt locally.
New Zealand's sharemarket yesterday tumbled in one of the biggest daily drops that traders have ever seen. Every stock bar one on the benchmark S&P/NZX50 index was in the red.
This is still far from an outright crash, but there are growing concerns of volatility returning to markets.
The good news is that if the GFC were to be replicated, the Super Fund would recoup the losses within a 20-month period.
New Zealand Superannuation Fund chief executive Matt Whineray said it was not forecasting another event like the GFC.
But he said using real data allowed it to talk to stakeholders now about the risks of it taking a growth-focused approach and the importance of staying the course with that approach when a downturn came.
The fund, which is not expected to start making substantial contributions to help pay for NZ Super until the 2050s, has about 80% of its money invested in growth assets.
Mr Whineray said a consequence of that choice was that it could mean a pretty bumpy ride for the fund.
During the worst of the GFC the fund fell by about 22% in the one year. But it recovered and still has an average annual return of 10.37% since 2003.