Big returns for NZ Super Fund

The NZ Super Fund has posted its strongest annual return in its 20-year existence but says it doesn't expect those high rates of return to continue forever.

Tuesday, September 14th 2021, 4:32PM

In the last 12 months, the fund has grown by $15 billion to $59.5 billion, an increase of 29.63% after costs and before tax.

Chief executive Matt Whineray says the result is an exceptional one for the fund, which was set up in 2001 to create a Government nest egg to help pay for future universal superannuation costs.

“This past year demonstrates the importance of sticking to our long-term investment strategies, which are designed to play out through market cycles," says Whineray.

He says the fund has a portfolio mix that was well-positioned to capture strong returns from rising asset values over the year.

The Government is projected to start making withdrawals from the fund to help pay for superannuation from the mid-2030s, and the fund is forecast to continue to grow as a percentage of GDP through to 2070.

"Given that time horizon, we’ve built a growth-oriented portfolio that will generate strong returns over the long term and performs strongly in periods of market expansion," says Whineray.

The fund exceeded the Treasury Bill return (the Government’s cost of debt) by $13.02 billion and beat its benchmark low cost indexed reference portfolio by $757 million, an achievement Whineray says is pleasing given the strong performance of global listed equity markets over the year.

Following balance date, the fund will make a $1.9 billion tax payment to the Government for the 2020/21 financial year - its funding model means that over time Government contributions tend to offset tax paid.

Government contributions to the fund over 20201/21 were $2.1 billion with the total tax paid by the fund in the 2020/21 year was $2.3 billion.

Whineray says in the nearly 18 years since investing began in 2003, the fund has returned 10.67% per annum (after costs, before NZ tax).

It has exceeded the 90-day Treasury Bill return by 7.14% per annum, or $39.1 billion, and the reference portfolio by 1.24% per annum.

Whineray says these are world-class results that show the Guardians has been successful in using the fund’s long horizon, operational independence, sovereign status and strong governance structures to generate above-market returns over a sustained period.

“What this means is that the team has added $10.6 billion of value above what would’ve been achieved with a simple, market indexed, passive portfolio.

"This is achieved by active investment strategies that leverage our endowments, such as our strategic tilting programme, private market assets and credit & funding investments.”

Whineray says with markets continuing to perform strongly and economies rebounding, supported by accommodating fiscal and monetary policies around the world, "...we’re possibly looking at a period of increasing inflation and rising interest rates".

"That combination should weigh on company returns and creates a challenging investment environment. We do not expect the outperformance of recent times to continue forever.”

“At the same time, the ongoing impact of Covid-19 and uncertainty about virus variants weighs on economic sentiment. It’s a recipe for ongoing uncertainty we aim to tackle by focusing on the long-term performance of the Fund.”

NZ Super Fund’s net asset position is comprised of:

Global equities 63%
Bonds 16%
NZ equities 4%
Rural land and timber 5%
Alternatives 6%
Private equity 4%
Infrastructure 1%
Property 1%

The fund’s New Zealand investments include stakes in Kaingaroa Timberlands, Kiwibank, Datacom, LabTests, Fidelity Life, $2.5 billion in listed equities and a range of investments in property, farmland and small-medium size growth companies.

Tags: fund performance funds management NZ Super Fund