NZ Super Fund exceeds targets in turbulent decade

Adrian Orr

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.”

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7 Comments & Questions

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How has the fund performed in that period versus other sovereign funds and versus the large university funds of similar size?

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Better than your fund Punakaiki performed Lance.

Best you not comment on the performance of Funds I guess.

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Is it really such a great skill to get these returns??...agree with Lances comments. After a 5 second google search I see the Government of Singapore Investment Corporation returned 8.8% over past 10 years` and they blew out with sub prime investments post GFC. Is this a case of setting a low target so you look like you are out performing?

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The American ones as I understand it aim for 7-8% pa. That is regarded as the minimum return required to meet their future obligations. While the NZ Super Fund has comfortably met that target how it compares to the actual return of many of those US funds, well who knows? But a number of them, particularly the State ones, are in trouble. http://www.cnbc.com/id/100929269

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Hi Lance, since 2009 the Fund has participated in an annual international benchmarking survey of sovereign wealth and pension funds undertaken by CEM Benchmarking Limited. The most recent (2012) survey, which encompassed 314 funds globally, found that the NZ Super Fund's net five-year value-add was well above the median of its peers, while costs were in line with benchmark norms.

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At what point does even the sceptic see a track record that supports the re establishment of government contributions.

Surely there is a greater affordability for social and other financial responsibilities if we invest prudently.

The use of a smart sovereign wealth fund is a nice enhancement to the other income generating opportunities available to govt.

Thank you dr Cullen for your vision. Thank you to the guardians and management for your performance.

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It's well past time that our government reversed their dim-witted decision to stop contributions to the fund. The cost of this stupid decision can be quite accurately measured, and it's in the hundreds of millions.

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