By Amanda Morrall
The New Zealand Super Fund, which hit a fresh high of NZ$20.08 billion in September, still has a long way to run before the investment will be tapped for cash.
The fund's first pay-outs aren't due until 2029/2030.
Given the investment horizon, Super Fund CEO Adrian Orr believes the fund's money managers can afford to go big; on equities.
Orr told interest.co.nz in a Double Shot interview the fund's growth oriented focus has so far served it well.
"We're very pleased. We set out an expectation at the beginning based on the construction of our fund, working back from our purpose which was a long-term horizon (therefore) we have a high proportion of our assets exposed to global equities and growth investments. We thought we'd get the risk free rate of return (with the Treasury Bill) plus about 2.5% per annum above that as a return expectation. As it turns out, more by chance than planning probably, we are basically there.''
Since inception, the Fund has returned 7.57% per annum.
The Fund, conceived in 2003, will help Government pay for the increasing cost of the universal superannuation.
Between 2010 and 2050 the number of recipients of New Zealand Super is set to balloon from 500,000 to 1.3 million.That's compounded by a five-fold increase in the number of people 85 years-old and over whose increased life expectancy will add more pressure on the system. (See also Amanda Morrall's story on an 'uneasy reality.')
To date, Government has contributed $14.88 billion to the Fund which has returned $2.32 billion to the Crown in tax.
Orr said the fund's performance shows "the benefit of remaining focused on long-term value, having the fortitude to stay the course, and concentrating on the things we can influence.”
'Deliberately look for risk'
He said growth assets would remain a priority despite uncertainty in the market.
"Our challenge is to deliberately look for risk and risk we believe we'll be rewarded for taking. That's the only way you'll get return. It's about being disciplined and saying 'what kind of risk are we prepared to take on and will we be rewarded for that'."
In its Annual Report for the year to 30 June 2012, the Fund's new investments are highlighted. They include a US$100 million investment in a Chinese infrastructure fund; the purchase of a 1/3 share in Christchurch-headquartered Scales Corporation; and additions to its portfolio of local dairy farms, now worth $110 million.
Orr said despite a slow down in China, the Super Fund's fund managers were comfortable with a greater exposure to the country.
"It's one of the many direct investment activities we are taking to ensure our fund is fully diversified but also getting exposed to areas we think will be continued good profit, high growth over that 20 plus (years) time horizon we're interested in."
He said the Super Fund's fund managers have teamed up with investment giants in Asia to mitigate risk.
24% of the fund is invested in NZ
The annual report also details progress made in implementing a 2009 direction from Minister of Finance Bill English to identify and consider opportunities to increase the allocation of New Zealand assets in the Fund.
"Over three years, the proportion of the Fund that is invested in New Zealand has increased 1.6% and the value of the Fund’s New Zealand investments has grown by a billion dollars,'' the report states.
"As well as its dairy farm portfolio and stake in Scales Corporation, the Fund’s New Zealand investments include more than $1 billion invested in the local share market, a 40% share in Kaingaroa Forest and a 50% share in Z Energy."
All up, 24% of the funds assets are New Zealand based.
Orr said social governance issues have become a greater priority for the Fund since he came on board five years ago and were behind a decision this month to cut three investments from its portfolio. Freeport McMoran, KBR, Tokyo Electric Power Company and Zijin Mining Group were dumped from the Fund over allegations of human rights violations, environmental concerns and bribery allegations.
"We're very focused on environmental, social and governance issues to the point where we have a clear check list before we invest to see if we should be engaging with companies who might be in breach of the standards we set."
Orr said the Fund's own standards require that any companies it invests in must abide strictly by NZ law, international law, the United Nation's Principles for Responsible Investment and any global agreements to which New Zealand is a party. It also excludes companies that invest in tobacco or weapons.
"It's not a trivial thing. We are one of very few funds globally who follow this but it is a growing trend,'' said Orr.