The New Zealand Superannuation Fund (NZS) was not the only sovereign wealth fund (SWFs) caught out by a soured Portuguese bank loan, according to sources close to the matter.
It is understood a handful of as-yet-unnamed SWFs and global fund managers were exposed to the roughly US$800 million loan to now-bankrupt Banco Espírito Santo (BES) via Oak Finance, a Goldman Sachs-engineered vehicle.
Last week, the NZS booked a NZ$200 million loss on its part in the deal, which fell over after Portugal’s central bank shifted the Oak Finance loan to the BES ‘bad bank’ – effectively pushing Oak investors to the back of the repayment queue.
The NZS has joined Goldman Sachs and other Oak investors in legal action to recover the BES investment.
Despite the BES loss, NZS reported a record month-end 1.17 per cent after NZ tax (but before costs) return this January, equating to $240 million.
“For the financial year to date, the Fund has returned 7.88% or $1.82 billion,” NZS said in a statement.
According to the latest NZS annual report, the fund we “provided financing of NZD263 million to two Collaterised Loan Obligation (CLO) warehouses” over the year to June 30, 2014.
“Both of these investments were in Europe and both have been successfully concluded,” the NZS report says.
“We also provided senior financing for the purchase of residential mortgage portfolios in Europe by a large private equity firm. Over time, the private equity firm will re-package the portfolios into marketable securities.
“These opportunities have arisen as a result of regulatory change in Europe which has made it less economic for banks to provide financing for certain products. They are attractive to us because they are senior obligations (lower risk), provide attractive margins, diversify our portfolio and are generally short term in nature.”
An NZS spokesperson confirmed the fund doesn’t “have any other bank exposure through loan structures of the type of Oak Finance”.