Guardians of NZ Superannuation Releases 2014/15 Annual Report
POSTED ON: 7 October 2015
The 2014/15 Annual Report for the NZ Super Fund, released today, credits the Guardians’ tilting strategy, and good performances by infrastructure assets such as Z Energy, with the Fund’s out-performance of global markets in the year to 30 June 2015.
As previously announced, the Fund returned 14.64% (after costs, before NZ tax), beating its passive Reference Portfolio benchmark by 4.45%. This was the third-strongest value-add performance in the Fund’s 12-year history. The Fund finished the financial year at $29.54 billion.
Chairman Gavin Walker said: “The Fund is a long-term one, with a multi-decade purpose. This latest strong annual performance is pleasing, but let’s not get too caught up in the highs and lows of annual or even medium-term rates of return. The performance of the Fund over its lifetime is more important, and on this count the Fund is clearly delivering significant value for stakeholders in return for the investment risks taken.”
Since investing began nearly 12 years ago, the Fund has returned 10.11% p.a., generating $13 billion in investment returns over the Treasury Bill return, a measure of the cost to the Government in contributing to the Fund instead of paying down debt.
The Fund has also exceeded its passive Reference Portfolio benchmark by an estimated $4 billion since inception. Mr Walker noted that the Guardians were described, in an Independent Review by Promontory Financial Group, as being one of “a minority of global professional fund managers who have delivered returns in excess of widely-used benchmarks over a sustained period of time.”
Chief Executive Officer Adrian Orr said the Fund was well on its way to meeting its purpose of reducing the tax burden of superannuation payments on future New Zealanders.
“While future retirement income liabilities continue to dwarf the Fund at present, we are very gradually closing this gap. There is no free lunch when it comes to generating future wealth. Our task is to ensure that New Zealanders are being rewarded sufficiently for accepting the investment risk that the Fund is taking on. We are very confident that these risks, in the context of the future retirement liabilities they are intended to offset, are worth taking. The Fund’s long time horizon, commercial independence, sovereign status and certain liquidity profile give it some great advantages over other market participants.”
Tilting, an investment strategy implemented by the Guardians’ in-house team of investment professionals, was the main contributor to the Fund’s out-performance of global markets during 2014/15 and since inception.
“We move towards or away from asset classes and currencies when we think the market has substantially over-reached (up or down) compared with our long-term assessment of relative value,” said Mr Orr.
A long-term strategy designed to play out over a full market cycle, tilting has generated an estimated $1.6 billion in value add since April 2009.
Other positive contributors included strong performance from global fund managers Bridgewater and D.E. Shaw, and by infrastructure assets including Z Energy. New Zealand investments Metlifecare, Datacom and Scales also performed well.
New Zealand Investments
At the end of the financial year, the Fund had $4.4 billion invested in New Zealand (2014: $3.7 billion).
Domestically, there was one major transaction, with the Fund purchasing an additional 3.25% stake in Kaingaroa Timberlands, bringing its total investment in the North Island forestry business to 42%.
The Canadian Public Sector Pension Investment Board (PSP) concurrently increased its stake in Kaingaroa to 55%. “We look forward to working closely with PSP and fellow owners, iwi group Kakano Investments Limited, to ensure Kaingaroa’s ongoing success,” said Mr Orr.
The Fund first invested in Kaingaroa in 2006; with an estimated value of NZ$1.4 billion, the investment is the Fund’s largest.
Mr Orr said that the Guardians continued to explore new domestic investment opportunities. “We believe we have a hometown advantage when investing in New Zealand. We balance this against the need for local investments to stack up against global alternatives, and for the Fund to be properly diversified across countries and asset classes.”
Offshore direct investments
New offshore investments included the purchase of a 50% stake in retirement village operator RetireAustralia. The Fund also added to a December 2014 US$60 million investment in gas fermentation company LanzaTech with a further US$15 million investment in June 2015. Mr Orr said the additional investment reflected progress made by LanzaTech.
A US$75 million investment in dynamic glass manufacturer View closed after year-end.
In both dollar terms and as a proportion of funds under management, the Fund’s overall expenses decreased over the year. Total expenses were 0.37% of funds under management compared to 0.44% in 2014.
Excluding performance fees paid to external managers, the Fund’s expenses reduced from 0.32% to 0.29% of funds under management.
An independent study by benchmarking consultants CEM found that the Fund added more value, and was lower cost, than global and peer fund medians.
Mr Orr said the Guardians had increased its staff numbers in line with its desire to invest as directly as possible. Higher personnel costs have been offset by reductions in the fees paid by the Fund to external managers and advisers, and other cost efficiency measures.
New online Annual Report summary
The Guardians has released an online version of its Annual Report at https://www.ar2015.nzsuperfund.co.nz. The summary report, a first for the Guardians, includes videos featuring the Chairman, Chief Executive Officer and Chief Investment Officer.
Mr Orr said transparency and clear communication to stakeholders were an important part of the Guardians’ responsibilities as an investor of public money.
All figures are as at 30 June 2015. Performance returns are quoted after costs and before NZ tax.
Media contact: Catherine Etheredge, Head of Communications, [email protected], +64 274 777 501.