NZ Super makes 19.8% portfolio gain in 2017

The sovereign wealth fund has, however, warned that it expects returns to fall this year as asset classes globally remain above full value.

The New Zealand Superannuation Fund recorded a 19.8 percent return for the 12 months ending December 2017, higher than the 13.2 percent in the previous year, mainly due to its overweighting in growth assets or equities.

NZ Super’s overall portfolio value also grew during the period to NZ$37.9 billion ($27.8 billion; €22.6 billion), compared with NZ$32.7 billion in calendar year 2016, with the New Zealand government resuming contributions in December. After almost a decade of suspensions following the global financial crisis, the government resumed repayments to NZ Super, with a total of NZ$500 million paid to the fund in the current fiscal year.

Catherine Savage, the chair of the Guardians of NZ Super, however, highlighted that although the global economic outlook is better than it has been for several years it “does not expect [NZ Super’s] annual returns in the teens and twenties to persist.”

“Returns are likely to normalise and over the long term we expect the fund will deliver average returns of approximately 8 percent a year, based on current portfolio settings,” she added.

Despite modest returns expected in the future, Savage said the fund is committed to long-term, growth-oriented investment strategies, and to its opportunistic approach to active investment.

Its recent deals include a NZ$100 million investment in insurer Fidelity Life. In October, NZ Super also expanded into the Australian beef sector by acquiring a stake in Palgrove for an undisclosed sum.

NZ Super has been focused on providing expansion capital, or the provision of capital to small and fast-growing companies, in the domestic market. Of the fund’s 5 percent private equity allocation, around 1 percent is invested in expansion capital, according to its December 2017 whitepaper titled ‘How We Invest’. It has backed managers such as Pioneer Capital and Direct Capital, according to PEI data.

The fund’s exposure to asset classes in 2017 remained unchanged from the previous year. Global equities made up the bulk of allocations at 66 percent, followed by fixed income at 11 percent, and private equity and timber at 5 percent each. New Zealand equities, investments in other private markets and public markets, as we well as infrastructure and rural farmland accounted for between 1 percent and 4 percent each.

In other news, Adrian Orr, who has headed NZ Super since 2007, is leaving in March to become the governor of the Reserve Bank. Chief investment officer Matt will be acting chief executive officer of NZ Super when Orr leaves and until a new replacement is found.