New Zealand Superannuation Fund (NZ Super Fund), the country’s sovereign wealth fund, managed to post a positive return of 1.73 per cent for the year ended June 30, 2020 despite the COVID pandemic. The size of the fund stood at NZ$44.8 billion ($30 billion) at the end of the financial year.
The fund, however, underperformed its benchmark reference portfolio, which returned 3.82 per cent in the year. Since its inception in 2003, the NZ Super Fund has returned 9.63 per cent per annum.
CEO Matt Whineray said the fund endured a “profound and globally far-reaching crisis” in the financial year. Whineray attributed the positive result for the year to the fund’s investment strategies, good governance, and carefully-managed levels of liquidity.
He, however, warned of more challenges as the economic damage from lockdowns and uncertainty about the future continue to weigh on sentiment. “The low interest rate environment and constrained economic conditions point to a difficult period ahead, and the uncertainty in the economic outlook is reflected in continuing volatility in global markets,” Whineray said.
Given that the NZ Super Fund has a long-term horizon with no substantial withdrawals until the 2050s, its portfolio is heavily weighed towards equities, and with a market shock like COVID-19, Whineray expects the value of the fund to fall sharply. “Yet, we also expect the fund to earn back these losses in subsequent years as the markets recover,” he added.
The fund has been upfront in recent years about the possibility of losing value when the market drops. Whineray said that was apparent in March when the fund saw the second-biggest monthly reduction (12.27 per cent) in its history. However, the fund went into this period in a strong position, he stressed.
“Our long-term horizon meant when risk sentiment was at its lowest, we could lean into market opportunities via counter-cyclical strategies such as dynamic asset allocation and accessing stressed credit and funding markets, to take advantage of the corresponding recovery,” he added.
Early this year, the fund anticipated lower returns than what it has enjoyed in recent years as it is taking a less active risk in the short term due to what it foresaw as a challenging market in 2020.
NZ Super Fund had reported a strong 2019 calendar year performance, returning 21.13 per cent, before tax and after costs.
Two-thirds of the Super Fund, which has backed private equity funds managed by firms such as Bain Capital, HarbourVest, and KKR, is invested in its passive reference portfolio, which returned an impressive 22.74 per cent in 2019.
Since its inception the fund has earned NZ$8.9 billion ($5.7 billion) in value-added returns over its passive reference portfolio benchmark.
“The most important thing for us amid the upheaval of the past few months has been to maintain our discipline as investors, remain systematic in our investment processes, and consider the long-term implications of our decisions,” Whineray said.