16 Sep 2015

NZ Super Fund growth expected to slow

2:49 pm on 16 September 2015

The New Zealand Superannuation Fund's investment returns have exceeded expectations, but the fund's guardians warn that the high rate of growth won't continue.

No caption

Photo: 123rf.com

The fund's net pre-tax return is up 14.6 percent, growing the fund by $3.1 billion to $29.54 billion, in the year ended in June.

Guardians of New Zealand Superannuation chair Gavin Walker said it was an excellent result, but it would not continue indefinitely, as the fund had returned a very strong, above-market return of near 17 percent over the past five years - adding about $4.5 billion to the fund.

"Returns in the 10 percent to 20 percent range are at the higher end of our expectations and will not continue indefinitely. Over the long term we expect the Fund to earn, on average, 8 percent to 9 percent per annum," he said

Mr Walker credited the growth to a strategy of active management, which was aimed at taking advantage of extreme market movements in order to maximise returns.

"These results provide a strong endorsement of the Guardians' ability to add value, after all costs, compared to a purely passive approach to funds management," he said

Guardians chief executive Adrian Orr said the short-term outlook was less rosy, as the fund would be hit by increasing volatility and uncertainty in global markets, which fell 6.5 percent last month.

"It is normal to see considerable volatility in our monthly and indeed annual returns. We remain focused on our long-term strategies.

"As an agile and highly liquid investor, we are well positioned to manage short-term volatility, and will look to take advantage of market disruptions as they occur," Mr Orr said.

The fund is heavily invested in equities, with global investments accounting for 61 percent of the portfolio, while the North American market accounted for almost half of its economic exposure at 44 percent.

New Zealand equities account for just 4 percent of the portfolio, with private equity markets accounting for another 4 percent.

The rest of the portfolio is a mix of fixed income, property, timber, infrastructure, rural farmland and other private market investments.

Overall, the fund's long term strategy is to have 80 percent growth assets and 20 percent fixed income.

Get the new RNZ app

for ad-free news and current affairs