The state service pension scheme, the Government Superannuation Fund has made a loss of $17 million in the year to June.
The Fund, which has 66,000 members, says after two strong years, the return was a 0.5% loss, compared with a 12% rise in 2011.
It says investments in emerging markets and foreign currencies failed to add value to the fund, while the high dollar impacted on returns from unhedged foreign assets.
In its annual report tabled in Parliament on Monday, the fund says the effects of the 2008 global financial crisis continue to reverberate.
It says it expects returns from its investments to continue to be low, however equities and other risky assets should provide a positive offset to negative returns on Government bonds.
Nearly half the fund's investments are in international equities, 20% in global fixed interest and 9% in New Zealand equities.
As the fund does not have sufficient assets to cover entitlements, the annual shortfall is topped up by the Government.