Whichever way you look at it, the NZ Super Fund has performed strongly since its inception in 2003, and in the last year.
While checking comparisons this morning, I found 3 ways to look at it:
- A media release yesterday saying the fund “is now worth” $43.1 billion
- A performance chart showing its total return as at 31 May 2019 (one month before year end) was $43.18 billion, and
- A running total on the fund’s website showing estimated value of $43.82 billion.
The fund’s year ends in June. It’s due to table its annual report in Parliament in October.
I expect to clarify those figures later in the day. Meanwhile, the fund has promoted its performance publicly, and the confusion is its creation.
The chair of the fund Guardians board, Catherine Savage, said in the media release the fund had grown by over $3.7 billion in the year to June, which she called a satisfying result that was influenced by a climate of global volatility.
The return for the year after costs & before NZ tax was 7.02%, beating the fund’s passive reference portfolio market benchmark by 0.67% ($261 million).
The fund has 2 important features:
- One, it invests globally, takes long-term views, and can look through & profit from periods of uncertainty & volatility, and
- The second, in the last 2 years, is that it’s expressed greater interest in investing locally in major infrastructure.
What’s disappointing about the second of these 2 faces of the fund is that the expression of enthusiasm to support local infrastructure hasn’t been more enthusiastically received, although discussions continue on a role in supporting Auckland’s light rail project.
In a second “infrastructure” investment, the fund said in July it had put $300 million into a hotel portfolio established by the Russell Group & Lockwood Property Group, creating a platform for the fund to invest further in New Zealand’s tourism sector.
Ms Savage said in yesterday’s release the fund stuck to its mission of maximising returns over the long term without undue risk, so it can reduce the future cost of providing for universal superannuation.
She said the fund had delivered $8.3 billion more than its reference portfolio benchmark, averaging 10.15%/year since inception in 2003.
Over the last year, “at a time when central bank policy decisions & trade tensions between the US & China are driving asset price values across the world”, Ms Savage said the fund had maintained an investment approach that continued to deliver.
The Government contributed $1 billion to the fund in the year to June, after the new government ended an 8-year suspension in December 2017.
Whineray expects returns to ease
Chief executive Matt Whineray said the year’s activity was a good example of the volatility inherent in a portfolio weighted towards growth assets: “It was literally a year of 2 halves. Negative returns from growth assets over the first half of the year saw the fund decline to a low point on Christmas Day 2018, before rebounding strongly to finish the year up just over 7%.
“Returns have been very strong since the global financial crisis – the fund has returned more than 14%/year over the last 10 years. All else being equal, given the market environment, we expect returns from the fund’s portfolio over the next few years to be less than those very strong returns we have seen, and possibly lower than our long-term expected average.
“Economic factors mean there are fewer attractive investment opportunities at the moment. This means we’re taking less active risk in the short term, thereby impacting expected value-added returns. However, our view about expected returns over the long term remains largely unchanged, giving us confidence that we can meet our commitment to New Zealand taxpayers.”
NZ Super Fund
16 July 2019: Super Fund joins Russell & Lockwood in hotel portfolio investment
28 September 2018: Super Fund beats its benchmarks
11 May 2018: Government starts on light rail procurement, Super Fund talks assessing viability & investment, mayor talks intensification
5 July 2017: Super fund explains tilting strategy
Attribution: Super fund release & website.