NZ Super Fund exceeds targets in turbulent decade

New Zealand Superannuation Fund has returned an average of 9.13% in each year of its 10-year existence, new figures reveal.

The returns are before tax after costs, says the fund’s manager, the Guardians of New Zealand Superannuation.

As at September 30, the fund was worth $23.93 billion. It has also paid $3.3 billion in New Zealand tax over the 10 years, including $980 million during the past 12 months.

Guardians chairman Gavin Walker says the fund is comfortably ahead of its key performance benchmarks and it has beaten the government’s cost of debt over the decade by 4.26% a year, or $6.96 billion.

The fund, which invests globally in order to help pre-fund New Zealanders’ universal superannuation entitlements, has also generated 1.06% a year or $2.22 billion more than its passive Reference Portfolio benchmark, a mix of active and passive investing.

“Over the past 10 years the fund’s performance has created significant wealth for New Zealand,” Mr Walker says. “Ten years is, however, a short period for measuring the success of a long-term investor. The fund’s growth-oriented portfolio is based on a much longer horizon and its performance should always be seen in context.”

The fund will not peak in size for another 70 years and will continue for many decades after that.

Guardians chief executive Adrian Orr, in a speech to the Trans-Tasman Business Circle in Auckland today, says sovereign wealth funds are positive for global financial stability.

“Internationally, [they] provide an opportunity to increase economic integration, share wealth between generations, develop capital markets and maintain financial stability, while also promoting responsible investment."

He says this has been done despite a volatile decade.

“We have experienced the recovery from the dotcom bubble, a credit crunch, a full-blown global financial crisis, the rise and rise of emerging and frontier markets, a global commodity boom, the near demise of the European currency union, record low official interest rates, and just recently some extraordinary political events in the US.

“As a long-term investor with limited need for liquidity, the NZ Super Fund has the luxury of being able to ride out and even profit from the short-term impact of these events on global markets.”

Mr Orr says the 10-year performance averages masked the inevitable month-to-month and year-to-year volatility of a heavily growth-oriented investment portfolio.

“The important point is that, despite an initial set-up phase, and then having the proverbial kitchen sink thrown at us in the Global Financial Crisis, the Fund’s returns have remained well within our initial expectations.”

He says the world is experiencing an incredible global transformation in demographics, urban migration, rising per-capita incomes and changing energy usage.

“These long-term and unstoppable trends are rapidly changing the fortunes of nations. As a long-term investor we must understand and prepare ourselves, as best we can, to benefit from the underlying trends.”