The New Zealand Superannuation Fund has so far spent about $150,000 in legal fees as part of its case to overturn a decision by the Bank of Portugal to move the fund's US$150 million investment into a "bad bank", thereby voiding its insurance on the investment.
The sovereign fund has written off the value of its investment after the Portuguese central bank decided to place the Goldman Sachs-organised loan to Bank of Espirito into the "bad bank" part of BES rather then the new state-supported "good bank" it set up following a reorganisation. The Superfund is among noteholders contesting the decision, which reversed an earlier ruling by the central bank.
"We can't forecast total cost," Superfund chief executive Adrian Orr told reporters after appearing before parliament's commerce select committee. "What I can say is we will be sharing our cost and with confidence around the case we should also have some cost repaid back to us when successful. The spending we have done to date has been around 60,000 British pounds in terms of getting our legal cover and around $30,000 so this is not a cheap exercise.
"If found to be correct we would get all of the money back," Orr said. "We are very confident."
The Superfund has had similar investment strategies worth more than $1 billion over the past five years, regularly using credit default swap insurance, and all have worked "exactly as anticipated", Orr said. The fund currently has no exposures structured in a similar way to the Goldman Sachs-organised loan, where bonds were issued through a finance vehicle called Oak Finance Luxembourg.
A preliminary review by the Superfund's risk compliance unit, which was tabled at a board meeting last week, found the fund's managers didn't overstep their authority or move outside of investment policies when they decided to make the Portuguese investment, Gavin Walker, chairman of the Guardians of New Zealand Superannuation, which governs the Superfund, told the select committee.
The fund is still considering what it has learnt from the process, he said.
"We will probably have some refinements around our process. They won't be material in nature," Walker said.