GSF returns up but tax bites harder

In the year to June 30, 2007, the Government Superannuation Fund (GSF) has made pre-tax returns almost 1% higher than in the previous year but on a tax-adjusted basis its surplus was over $100 million less than in the 2006 year.

Wednesday, September 26th 2007, 3:25PM

by David Chaplin

According to figures released yesterday, the GSF returned 14.9% in the year to June 2007 compared to 13.7% in the previous 12-month period. However, the fund's surplus after tax stood at $462.4 million in 2006 versus $354.8 million in the latest reporting period representing a return on average assets of 13.5% and 9.5% respectively.

The corresponding increase in net assets measured $271.7 million in 2006 and $209 million in the year to June 2007.

Basil Logan, chair of the GSF Authority, said the latest result exceeded its benchmark (of 2.5% above the NZX Government Stock Gross Index) by more than 5.8% with the fund returning 4.3% above the measure over the last three years.

Compared to other super funds the GSF has performed well, Logan said.

"The Mercer Investment Performance Survey, which covers 65 standalone New Zealand superannuation schemes, had a median average after tax-return of 6.4 % for the same period, compared to the Fund's 9.5 %," he said.

However, of the five asset classes in the GSF portfolio only two (property and NZ fixed interest) outperformed their relevant indexes.

Logan said since the GSF changed its strategy in 2001 the fund has added more than $600 million above what it would have earned in government bonds.

Since 2001 the GSF has embarked on more aggressive investment strategies and over the next year will increase its weightings to international equities from 42.5% to 52%.

That increase comes at the expense of New Zealand equities (down to 2% from 13%) and a reduction in the allocation to international fixed interest from 27% to 20.5%.

The GSF is also transitioning from a passive equities strategy to an active approach along with the recent changes to investment tax rules. In its Statement of Intent released earlier this year the GSF revealed its investment management expenses would almost double in the 2007/8 year because of the switch to an active equities strategy.

The fund has projected investment fees of $19.4 million in the coming year compared to an actual expense of $9.1 million in the 2006/7 period.

The GSF currently has mandates with 11 external managers some of whom are expected to change once the new policy is implemented. The fund's current equity managers are AllianceBernstein, AMP Capital Investors and Assure Funds Management.

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