Volatility hits NZ Super Fund

Negative returns on global equities have hit the NZ Super Fund’s return in the year ended June 2016.

Wednesday, September 21st 2016, 10:16AM 5 Comments

It returned 1.89% after costs and before tax, compared to 14.64% for the same period a year earlier.

The fund out-performed its passive Reference Portfolio benchmark by 0.52% ($155 million) during the year, due mainly to strong performance by active investments in timber and infrastructure.

Its single largest investment, a 42% stake in New Zealand forestry business Kaingaroa Timberlands, increased in value by $82 million to $1.49 billion.

The fund, which is designed to help pre-fund national superannuation payments from 2032, finished the June financial year at $30.10 billion before tax, up $0.56 billion.

Chair Catherine Savage said the result was robust given the low growth, volatile environment. Global equity markets experienced negative returns over the year, with the MSCI developed markets and emerging markets indices returning a combined -1.88%.

Savage said the Guardians’ board remained focused on the long-term and therefore deliberately weighted the fund towards growth assets, such as global and New Zealand shares and private investments in businesses, including early stage companies.

“While these assets can lead to short-term volatility in returns, our emphasis on growth is appropriate given the fund’s long time horizon and ability to diversify. Not every investment will be successful, and the fund’s returns will dip from time to time, but investing in growth assets is the best way to ensure that we maximise long-term returns to the taxpayer,” she said.

Chief executive Adrian Orr said notwithstanding strong recent fund returns in July (3.7%) and August (1.2%) 2016, the global investment environment was challenging, with slow economic growth. “Overall investment returns are likely to be volatile and on a low trajectory for some time.

“Global growth and inflation remain subdued, despite Central Bank actions and historically low interest rates. There is an abundance of capital looking for investment opportunities, and asset valuations are therefore fully priced. We are having to work harder to find attractive investment opportunities."

Tags: NZ Super Fund

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Comments from our readers

On 22 September 2016 at 5:49 am Peter Urbani said:

Swinging for the fences (80% Growth 20% Income) because government guaranteed may be a viable business strategy but it has very little to do with prudent investing or downside risk management.

On 23 September 2016 at 8:23 am Brent Sheather said:

Peter there might be another rationale for that super aggressive asset allocation and that is maybe people’s performance bonuses are related to outperformance of the reference portfolio. I don’t know this but one can often explain behaviour (e.g. Wells Fargo) by perverse incentives.

Regards
Brent

On 23 September 2016 at 11:32 am NoNoCents said:

Peter Urbani I don't understand your comment where is the "government guarantee"?

It appears to me that the NZ Super Fund is adopting an entirely prudent investment strategy and adopting sound downside risk management in accordance with its objectives. The performance to date has been exceptional. Read how they go about it https://www.nzsuperfund.co.nz/how-we-invest/balancing-risk-and-return

On 24 September 2016 at 7:52 pm Peter Urbani said:

The NZ taxpayer is on the hook to pay roughly 140bn in Super Liabilities irrespective of how much capital the fund does or does not accumulate hence there is an implicit guarantee that pensions will be paid regardless of how well the fund performs.

On 26 September 2016 at 7:14 pm thombentley said:

If you read the NZ Super Fund's mandate, withdrawals don't start until 2032/33 and the fund will continue to grow until 2080 or so. With that kind of investment term, it's entirely appropriate to have 80% in growth assets. It's got nothing to do with bonuses or incentives.

The Super Fund is recognised globally as a best in class sovereign wealth fund and we should be proud of it.

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