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The NZ Super Fund says market volatility has returned following reaction to the outbreak of COVID-19 and uncertainty about its lasting impact.

Representatives from the Guardians of NZ Superannuation, the entity that runs the Super Fund, appeared in front of Parliament’s Finance and Expenditure Select Committee for its annual review into the Fund’s performance.

“COVID-19 is having a dramatic impact on individuals, families and communities right around the world,” says NZ Super Fund CEO Matt Whineray.

“It is also impacting the global economy as travel is restricted, supply chains are interrupted and demand drops off. Markets are reacting to the uncertainty created by the virus and are fluctuating pretty widely at the moment.

“For instance, last week was the worst week on the US market since the GFC in October 2008.

“However, Monday saw the American markets rebound strongly with the Dow Jones up 5.1 percent, and European and Asia-Pacific markets following suit. Today the US market is down, even after the Federal Reserve cut interest rates by 50 basis points.

Members of Parliament on the committee asked several questions relating to the impact of market volatility on the performance of the Fund. Mr Whineray assured MPs the Guardians remains confident about the Fund’s long-term performance.

“As a long-term sovereign wealth fund we have the ability to look-through periods of market uncertainty. The important thing is that we retain confidence in our investment settings and don’t get spooked. Should there be a global downturn the worst thing we could do is stop investing and miss the recovery.”

Guardians Chair Catherine Savage also updated MPs on the Fund’s performance and activities across the previous year.

“Recently we released our 2019 calendar year figures that showed a return of 21.13 percent (unaudited, before NZ tax, after costs) for the 12 months to 31 December that saw the Fund grow to $47 billion. We’ve come back following global market declines to sit at $44.89 billion as of 2 March, a reduction of $2.11 billion or 4.49 percent.

“We’re still showing an increase for the financial year-to-date, but these numbers highlight the short-term impact of the market downturn on our growth orientated portfolio. It emphasises the importance of having a long-term outlook for the Fund, which has grown at 10 percent per annum since inception.”

Ms Savage outlined some key highlights from the previous year including:

Five-yearly independent review

Treasury’s independent review by global business advisory firm Willis Towers Watson found the Guardians is “best-practice in its activities and more capable of achieving high performance than the vast majority of its peers”. It described the Guardians’ investment approach and returns as “very impressive” following adoption of a high growth profile that has delivered strong returns from the Fund’s passive exposure to listed equities and bonds, as well as a significant contribution from active, value-adding investment strategies.

Venture capital mandate

Last year parliament gave the Guardians an additional mandate to support the development of New Zealand’s venture capital markets and growth businesses, utilising its best practice approach to investment management. The Guardians now oversees the New Zealand Venture Investment Fund’s (NZVIF) management of the Venture Capital Fund, which will soon distribute funding to domestic and international private sector VC fund managers to invest in local growth businesses.

Auckland Light Rail

The Guardians has submitted a high quality and innovative proposal to partner with Government to design, build, own and operate Auckland’s City Centre to Mangere light rail line. It is part of the Guardians’ commitment to identifying large-scale local infrastructure projects to invest in where it can add value through international partnerships, innovative design and financial management.

Response to Christchurch

In response to the terrorist attack in Christchurch, the Guardians and other Crown Financial Institutions set up an investor initiative to engage directly with social media companies Facebook, Google and Twitter to encourage them to strengthen controls that will prevent the live streaming and distribution of objectionable content across their respective platforms. The initiative now has 100 participants representing over $13.5 trillion of assets under management. It continues to seek engagement with the companies push them to ensure that what happened in Christchurch cannot be distributed across their respective platforms again.