Kia ora,

I am pleased to present the Guardians’ Annual Report for the 2020/21 financial year.

The past year has seen both the NZ Super Fund and the Elevate NZ Venture Fund perform well. Amid the upheaval and uncertainty of the COVID-19 pandemic, we maintained our discipline, trusting in our investment beliefs and the strength of our endowments as investors, and supported our team to balance work and family demands.

As previously announced, over the 2020/21 financial year the NZ Super Fund delivered its strongest annual return on record. In this short video, I explain the specific measures we took in the aftermath of the COVID-induced shock to financial markets, and how these contributed to our record return.

While we are proud of this result, it is best kept in perspective. In line with the theme of this year’s Annual Report, “seeing the big picture”, it is important to remember that single-year snapshots have limited relevance for us as long-term investors.

Long-term performance 

In this Annual Report, we explain the drivers behind the Fund’s long-term investment performance. Central to this is our choice of Reference Portfolio, which sets the Fund’s overall level of market risk.

Paired with strong governance and carefully calibrated investment frameworks, our decision to take market risk over an extended period has paid off in the form of strong returns, averaging more than 10% per year. This has set us on the path towards fulfilling our long-term purpose of supporting New Zealanders in their retirement. To date, this approach has contributed more than $39 billion above the cost of Government borrowing, adding significantly to New Zealand’s financial wellbeing.

On pages 34 – 38 of the Annual Report, we explain that our choice of Reference Portfolio, made up of 80% global equities and 20% global bonds, and 100% hedged to the New Zealand dollar, has generated an estimated $10 billion more in returns than a standard 60:40, 50% hedged alternative would have done (figures from July 2010, when the Reference Portfolio was introduced, to 30 June 2021).

In the short-term, because of the high proportion of equities in the Reference Portfolio, we may experience considerable volatility in our investment returns. Due to the Fund’s long-term investing horizon, we have the ability to ride out and potentially benefit from these short-term market movements. Taking more risk, while it has led to some bumps along the way, has paid off over time.

Beyond the decision to take that level of market risk, our active management of the portfolio has added more than $10 billion of additional value since the Fund’s inception.

Sustainable finance

Elsewhere in the Report, we discuss how our investment and organisational strategies are helping to sustain this performance across the long-term metrics that matter most.

This includes the review of our Responsible Investment Strategy undertaken during the year. The review was an extensive and considered reflection on how we maintain our leadership position in this area and retain the confidence of our stakeholders, while ensuring we continue to meet our commercial mandate.

This Annual Report provides further detail on what was the foremost outcome of this review, our shift towards sustainable finance. As we look to form our new Sustainable Finance Strategy, we will be thinking harder about the impact of our investments on society and the environment, and how we can contribute towards the development of a sustainable financial system.

Other report highlights include:

• We provide a breakdown of various ways we are invested in our home market of New Zealand (pages 46 – 48).
• We explain our approach, as active asset owners, to engagement and exclusion (pages 62 – 65).
• We detail progress made across a number of multi-year enterprise-based initiatives focused on technology, data, systems and processes (pages 106 – 107).
• We spotlight several high-quality new team members we welcomed over the financial year, and detail the positive contributions they have made (pages 21, 24, 39, 41, 47, 48 and 50).

In this short video, you can hear more on these initiatives directly from our Chair, Catherine Drayton.

Alongside this Annual Report we will be releasing an updated Climate Change Report for 2021, reported in accordance with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). This report can be read together with the NZ Super Fund’s 2021 carbon footprint, which shows the carbon reductions made in our portfolio relative to our 2025 targets. Notably, the Fund has achieved its targets, and no longer has any material, long-term holdings of fossil fuel reserves.

As part of our commitment to best practice disclosure we index our reports against the Global Reporting Initiative criteria.

We have also published a comprehensive list of the NZ Super Fund’s portfolio holdings, updated to 30 June 2021. The Fund now has around 3,800 stocks in its global equities portfolio, down from around 6,700 at the same time in 2020. We are now getting exposure to many small listed companies synthetically (via swaps); rather than by holding shares directly. The move has a number of benefits including reduced trading costs, improved Fund liquidity, simpler currency hedging and reduced complexity. It will not impact upon portfolio diversification.

• Click here to download the Annual Report 2021.
• Click here to download the Climate Change Report 2021.
• Click here to download the NZ Super Fund Carbon Footprint 2021.
• Click here to download the Global Reporting Initiative Index 2021.
• Click here to download a copy of our portfolio holdings updated to June 2021.

During the year we farewelled our previous Chair, Catherine Savage, along with Board members Stephen Moir and Simon Botherway. I’d like to take this opportunity to thank Catherine, Stephen and Simon for their respective contributions and commitment to furthering the Guardians’ mission.

We want to ensure our reporting to the public meets our readers’ needs. Feedback is welcome, and can be directed to [email protected].

Noho ora mai rā,

Matt Whineray
Chief Executive Officer
Guardians of New Zealand Superannuation