The New Zealand Superannuation Fund has unveiled a strong June year performance.
It returned 20.7% after costs and before New Zealand tax, swelling $5 billion to $35 billion.
Established by the previous Labour Party-led government to help meet the rising cost of superannuation payments to retirees, the Super Fund began investing in September 2003 with about $2.4 billion. The National Party-led government stopped making contributions to the Super Fund in 2009, with the Government having tipped in about $12.34 billion of taxpayers' money to that point.
The Super Fund is one of New Zealand's biggest taxpayers having paid $920 million of tax in the year to June 2017. We discussed this, and other issues, with its CEO Adrian Orr in this 2015 video interview.
Below is the NZ Super Fund's statement on its latest annual performance.
NZ SUPER FUND ANNOUNCES 20.7% RETURN FOR 2016/17
The NZ Super Fund has enjoyed one of its best annual performances yet, turning in a 20.7% (after costs, before NZ tax) return for the 12 months to 30 June 2017. It finished the year at $35 billion, up $5 billion on the year before.
Chair Catherine Savage said: “The Fund is generating world class returns and creating significant wealth for New Zealanders on a sustained basis. It should not, however, be measured on its short-term returns. We are here to create long-term value for New Zealand taxpayers. The Fund has now returned 10.2% p.a., more than double the cost to the Government of contributing to it,* over a period of nearly 14 years.”
The 20.7% annual result reflects a sustained rally in global equity markets, and resulted in the Fund paying a record high $1.2 billion in New Zealand income tax for the financial year.
Ms Savage said the Fund’s active investment strategies had performed strongly during the year, adding value of 4.4% ($1.3 billion) over the Fund’s passive benchmark. “Over the long term we expect to beat the passive benchmark by 1% p.a., so this has been an excellent year.”
She said the Guardians’ strategic tilting programme, in which it adjusts the Fund’s exposure to different asset classes; its significant investment in North Island forestry business Kaingaroa Timberlands; and the Guardians’ internally-managed credit mandates, were the key reasons the Fund beat the passive benchmark.
Since inception in 2003, active investments by the Guardians have generated an extra $6.2 billion (1.4% p.a.), over what an entirely passive strategy would have done.
Chief Executive Officer Adrian Orr said the Fund continued to be heavily weighted towards growth assets. “A long investment horizon and low need for liquidity give us some unique advantages in the investment marketplace both in New Zealand and overseas. Our active investment strategies and strong weighting towards growth assets exploit these advantages in a disciplined and cost-conscious way.”
Fund volatility was within expected parameters and the amount of risk being taken was appropriate, he said. Total risk at the Fund level, and active risk taken, had both been reduced over the year as markets continued to rally. “The returns we have been achieving are above our long run expectations, and we are cautious about the outlook,” Mr Orr said.
“As a long-term, contrarian investor the Fund has the ability to look through and profit from market cycles. While global growth prospects are currently quite encouraging, should markets drop we are well positioned to capitalise. The Fund’s expected returns over the long term (rolling 20 year periods) remain at around 8% p.a.”
Fund ranks highly in CEM survey
The latest CEM survey of international pension fund cost effectiveness ranks the NZ Super Fund highly, relative to a group of its peers, for net value add. CEM put the NZ Super Fund at the 100th percentile for net value add over four and five year periods. The NZ Super Fund also ranked well on cost measures, lower than the peer group average and trending down over time. The CEM survey, which is as at 31 December 2016, is available at https://www.nzsuperfund.co.nz/
Summary Results as at 30 June 2017
2016/17 Financial Year:
- Total Fund returns: 20.71%
- Estimated $ earned by active investment: $1.28b
- Estimated $ earned relative to T-Bill return: $5.56b
Since Inception (September 2003):
- Total Fund returns: 10.22%
- Estimated $ earned by active investment: $6.25b
- Estimated $ earned relative to T-Bill return: $19.09b
See our June 2017 Performance Report for more information.
* As measured by Treasury Bill returns. All performance figures are after costs, before NZ tax.