New Zealand Superannuation Fund (NZ Super) has posted an annual return of 19.8 per cent for the year ended December 2017 with total assets surging to NZ$37.9 billion ($27.8 billion) amid an overweight value of growth assets or equities, an investment segment that the fund is heavily skewed towards.
While the portfolio gains for the year are significantly higher over 2016 (13.2 per cent), there was also a word of caution from NZ Super which released its returns on Thursday. The fund has said that the bright returns over the past period in the “teens and twenties” may not persist and are set to “normalise” from next year.
“Looking forward, the global economic outlook is better than it has been for several years. However, with many asset classes globally at or above full value, we do not expect annual returns in the teens and twenties to persist,” said Catherine Savage in a statement. Savage is Chair of the Guardians of NZ Super, the Crown entity that manages the fund.
She further noted that the returns that have been in double digits for past few cycles are likely to normalise and over the long term the fund expects to deliver average returns of approximately 8 per cent a year, based on current portfolio settings.
Including the latest 2017 annual returns, the Auckland-based fund at an average has returned 10.5 per cent per annum — after costs, before NZ tax — since inception in 2003.
It may also be noted that in December last year, the New Zealand government resumed contributions to NZ Super which had been suspended for almost a decade, an aftermath of the global financial crisis that had hit most economies in the past decade.
“We remain focused on identifying attractive active investments in New Zealand, with recent highlights including a $100 million investment in New Zealand insurer Fidelity Life,” the fund noted.
As a long-term investor with known cash flows, the Fund is heavily weighted towards growth assets, such as shares. However, the NZ Super also mentioned that while growth investments can be volatile over the short term, “we can ride out and profit from any future market downturn.”
In total, the assets of the fund stood at $37.9 billion, again a surge over NZ$32.7 billion at the end of 2016. At the end of December last year, the asset mix comprised global equities at a whopping 66 per cent, fixed income at 11 per cent and private equity at 5 per cent. The rest of the assets were in Timber, NZ equities, other private markets, infrastructure and rural farmland, according to its December 2017 performance report.
The same report notes that its investments in terms of geographies was heavily skewed towards North America (46 per cent) while Asia (ex-Japan) formed 10 per cent.
Meanwhile, the firm is currently undergoing a transition at the top as it is pursuing a global recruitment process for a new CEO, something that may be only completed by March. The fund’s current CEO Adrian Orr is leaving for a new role as Governor of the Reserve Bank of New Zealand. For the time, Chief Investment Officer Matt Whineray has been appointed Acting CEO from mid-March.