by Russel Norman
Is it a good idea to invest $177 million of the New Zealand Superannuation fund into catastrophe bonds — bonds that pay out big if there are fewer hurricanes in Florida? And is it a good idea to invest a further $212 million of our retirement savings into Shell’s petrol stations and other retail assets when the margins for retailing petrol are already slight and the risks in the future are all on the downside?
Green Co-leader Russel Norman talks about a couple of unusual recent investment decisions from the Superfund — decisions that seem, on the face of it, to bet against climate change and peak oil.
Click to play
If you’re having problems with our Flash player, try this alternative site. This podcast series is now available on iTunes. Enter “New Zealand Green Party” in the search bar.
This work is licenced under a Creative Commons Licence.
Published in Economy, Work, & Welfare | Environment & Resource Management | THE ISSUES by Russel Norman on Tue, April 13th, 2010
Tags: catastrophe bonds, climate change, Infratil, NZ Superfund, shell service stations
More posts by Russel Norman | more about Russel Norman
on the trolls and those who are unable to keep on topic
What do you suggest. That the superfund buys Lotto tickets.
Like or Dislike:
4 
2 (+2)
Investing in Shell is a good idea.
Now NZers can support the fund by buying fuel from a NZ company. I will.
Like or Dislike:
3 
2 (+1)
Whether a catastrophe bond is a bad investment depends not on just whether there will be more catastrophe’s or not, it also depends on the price of that bond. If it was very very cheap then it might be worth a punt!
So without knowing the price, I can’t agree that they are necessarily a bad investment just because there are likely to be more catastrophes.
Like or Dislike:
3 
0 (+3)
“Investing in Shell is a good idea”
especially if it provides an avenue for the introduction of alternative fuels in the future. It could be a really good thing that we have New Zealand owned infrastructure when it is time (any minute now!) to begin a transition to less foolish means of fuelling. Can only cross our fingers…
Like or Dislike:
1 
1 (0)
“So without knowing the price, I can’t agree that they are necessarily a bad investment just because there are likely to be more catastrophes”
regardless of the price though, surely we can think of better uses for money than gambling on natural disasters…?
Like or Dislike:
1 
0 (+1)
A multitude of factors – risk, return, need for diversification, just like any other investment Rimu! I don’t think anyone has too many issues with how the Superfund Guardians have performed to date, and hard to comment further without knowing exactly what the bonds pay off on.
The guardians said that essentially the bonds covered catastrophic events in areas where such events presented a low but genuine risk.
http://www.nzherald.co.nz/super-fund/news/article.cfm?c_id=468&objectid=10623702
So probably not Florida, like Russell suggests….
Like or Dislike:
0 
1 (-1)
Yep, I guess so!
Like or Dislike:
3 
0 (+3)
regardless of the price though, surely we can think of better uses for money than gambling on natural disasters…?
Yep, I guess so!
Maybe!
It’s not roulette, or a coin toss. It’s “a strong diversification play”, which means it’s part of the overall strategy of providing constant returns regardless of market conditions*. If the risk and the return provides this according to the pointy-headed ones, then they should do it!
*man, this really couldn’t be any less affected by market conditions at all!
Like or Dislike:
0 
1 (-1)
Russel’s on the money. The Superfund provides further details of their investment in catastrophe bonds and yes, it does include the USA: “We have made an initial commitment to the strategy of US$125 million with potential to expand to US$250 million. This will mostly be invested in securities that cover US hurricanes and earthquakes, with some products covering European wind storms and Japanese earthquakes.”
Source: http://www.nzsuperfund.co.nz/files/Catastrophe%20Bonds%20Fact%20Sheet.pdf
Like or Dislike:
1 
0 (+1)
Ah yeah I wasn’t saying it wouldn’t include the US, but seems unlikely that it would include Florida in the case of hurricanes since it’s quite infamous for those particular events – not a “low but genuine risk”, I think.
Like or Dislike:
0 
0 (0)
We are talking about the same Superfund that lost funds when the global banking crisis toppled US banks, aren’t we?
StephenR -
So, explain to me again how you can be sure that Florida wouldn’t be included in an indemnity fund for US hurricanes and earthquakes, given that sub-prime mortgages and COD’s managed to break out of US financial services corporations to infect the global banking system?
These are fund managers with absolutely no scruples, if they can set up a situation where US investors win profits on a deal, end of story.
Or are we now so ‘sophisticated’ that NZ should just accept any financial terms offered, since the US taxpayers seem to be hitched to bailing out their banks for any failure?
Give me a break….
Like or Dislike:
0 
0 (0)
We are talking about the same Superfund that lost funds when the global banking crisis toppled US banks, aren’t we?
Yeah, but so did everyone else. If they’d seen it coming they could’ve made billions and we’d all be richer than astronauts.
So, explain to me again how you can be sure that Florida wouldn’t be included in an indemnity fund for US hurricanes and earthquakes, given that sub-prime mortgages and COD’s managed to break out of US financial services corporations to infect the global banking system?
I didn’t say I was sure, but just going by that *one* line I cut-pasted you wouldn’t want to bet against moderate-to-highly damaging hurricanes in Florida, that’s all. I’m fairly new to this investment stuff – what’s the connection you’re making between the sub-prime malarky and this?
Or are we now so ’sophisticated’ that NZ should just accept any financial terms offered, since the US taxpayers seem to be hitched to bailing out their banks for any failure?
Do you object to this investment on the basis that it’s a) a known risk, but still too risky, b) it’s riskier than you think, probably (sub prime and all that!) or c) that it’s distasteful in some way?
Like or Dislike:
0 
0 (0)