NZ Super Fund releases its 2013/14 Annual Report; cautions stakeholders to expect more normal returns going forward
POSTED ON: 8 October 2014
The 2013/14 Annual Report for the New Zealand Superannuation Fund describes the Fund’s recent performance as exceptional.
The Fund benefited from a strong share market rally in 2013/14, with a total return of 19.36% (25.83% in 2012/13). It increased in size by $3.3 billion, finishing the year at $25.8 billion after NZ tax.
But Gavin Walker, Chairman of the Guardians of New Zealand Superannuation, said the run of strong Fund returns, 17.01% p.a. over the last five years, should not be considered normal.
“Fund returns over the last few years have been exceptional and are unlikely to continue at this level,” said Mr Walker.
“Looking forward, we know that the Fund will have bad years along with the good. With an investment horizon stretching out for many decades in front of us, we will continue to weight our portfolio towards growth assets and make the most of our tolerance for risk.”
Chief Executive Adrian Orr said prospects were good for sustainable growth in developed economies as well as in emerging markets. “However, prices for most major asset classes have now returned to their long-term fair value levels. Going forward, we can expect more normal returns.”
Long-term, the Guardians expect that the Fund will exceed the return on New Zealand Treasury Bill, a measure of the Government’s marginal cost of debt, by at least 2.5% p.a. The Guardians then aim to add another 1.0% p.a. to the Fund through active investment on top of that.
Mr Walker said he remained confident that the Fund would continue to deliver value for taxpayers. “Since investing began in 2003, the Fund’s returns have more than doubled the Treasury Bill return, exceeding it by 5.06% p.a. as at 30 June 2014. In simple terms this means that the Crown balance sheet is nearly $10 billion better off than if the money had been used to reduce debt.”
The Guardians have also added value over and above the Fund’s passive Reference Portfolio benchmark. Although the Fund slightly underperformed the Reference Portfolio’s strong 19.47% return for 2013/14, since inception in 2003 it has beaten it by 1.03% p.a. ($2.6 billion).
Mr Walker said the main reason the Fund underperformed the Reference Portfolio in the year to 30 June was its strategy in relation to the New Zealand dollar. “As at 30 June we were well positioned for the recent drop in the New Zealand dollar. We remain comfortable with the view that the dollar is overvalued and will revert to a more normal level over time.”
The Annual Report also highlights the significant contribution the Fund makes to the Crown accounts, with a New Zealand tax expense for the year of $1.09 billion. Since inception the Fund has paid $4.36 billion in New Zealand tax. In 2013 the Fund contributed 10% of the total income tax paid by companies in New Zealand.
Noting that the Fund is held in high regard internationally, Mr Walker said it had been blessed with legislation that was a model of best practice and good, independent governance.
“We have also been able to take advantage of the Fund’s generous investment horizon, its small size and our relative youth to work innovatively and nimbly,” said Mr Walker.
“We continue to focus on meeting global best practice standards in our management of the Fund, and on developing our relationships with similar global peer funds.”
Mr Walker said CEO Adrian Orr’s appointment to roles as Deputy Chair of the International Federation of Sovereign Wealth Funds and Deputy Chair of the Pacific Pension Institute provided global recognition of the quality of the Guardians’ work. Mr Orr holds these roles concurrent with his CEO position.
“These global connections and relationships are important strategies for us as we look to overcome the challenges to the Fund posed by New Zealand’s small size and distance from the world’s major capital markets,” said Mr Walker.
Mr Orr said the Fund had matured over its first decade. “It has now experienced the full investment life cycle of hatch, match and dispatch – originating investments, adding value alongside co-investors and business operators, and realising profit upon exit through direct sales and public listings.”
The Annual Report is accompanied by a Global Reporting Initiative index and a full list of the Fund’s global equity holdings as at 30 June 2014.
Audited Fund returns since inception (30 September 2003), as at 30 June 2014:
- Fund return: 9.78% p.a.
- Fund size: NZ$25.8 billion
- Value added by Guardians compared to passive Reference Portfolio benchmark: 1.03% p.a. (NZ$2.6 billion)
- Net Return – returns over and above the Treasury Bill return: 5.06% p.a. (NZ$9.9 billion)
Investment returns are audited and quoted after costs and before New Zealand tax. The Guardians consider New Zealand tax paid a return to the Crown.
The New Zealand Superannuation Fund is a $26 billion global investment fund designed to help pre-fund future universal pension payments in New Zealand. It is managed by a Crown entity, the Guardians of New Zealand Superannuation.
Media contact: Catherine Etheredge, Head of Communications, New Zealand Superannuation Fund, 0274 777 501, [email protected]