New Zealand sovereign wealth fund warns of lower returns ahead

Auckland, New Zealand. Photo by Kirsten Drew on Unsplash

New Zealand Superannuation Fund, the country’s NZ$44 billion ($28 billion) sovereign wealth fund, said on Tuesday it anticipates lower returns – “possibly lower than its long-term average” – over the next few years in view of the current market environment.

The wealth fund, better known as NZ Super, returned a little over 7 per cent in the fiscal year ending June 2019 after costs and before local tax, according to its 2018-19 annual report released this week.

During the year, growth assets in the fund’s portfolio saw negative returns in the first half. In fact, fund performance declined to a low point on Christmas day of 2018, before rebounding strongly to the year-end figure, said NZ Super CEO Matt Whineray.

The annual performance boosted NZ Super’s return since its inception in 2003 to 10.15 per cent per annum, NZ $8.3 billion more than its reference portfolio benchmark, a passive, low-cost notional portfolio of listed equities and bonds that serves as a benchmark for its investments.

NZ Fund’s performance vs. the Reference Portfolio.

Unclear future outlook

“The forward outlook is unclear. Projections for economic growth are being revised down slightly, and inflation remains tepid, which is consistent with the view of bond markets, but monetary conditions are supportive and equity markets rumble on… We expect lower asset returns going forward, which is consistent with this stage in the cycle,” NZ Super economist Mike Frith wrote in the annual report.

Earlier this week, Australia’s A$165.7 billion sovereign wealth fund Future Fund had warned of a subdued long-term investment outlook after reporting a 3.4 per cent drop in its return for the three months to September 2019.

Private equity exposure

NZ Super, which has backed private equity (PE) funds managed by firms such as Bain Capital, HarbourVest and KKR, had a 5 per cent exposure to private equity as at 30 June 2019.

NZ Super revealed outstanding commitments to PE and collective investment funds totalling nearly NZ$216.2 million at the end of June. It had additional commitments of more than NZ$500 million to provide follow-on capital, according to its annual report.

During the year, the wealth fund dissolved its international team for direct investments, choosing to “focus instead on leveraging [its] external managers’ relationships” to secure investment opportunities such as through co-investments. The fund retains a direct investment team focused on the domestic market.

Geographic exposure

In terms of geographies, more than 85 per cent of the fund is invested offshore. Its exposure to the Asia Pacific was 31.4 per cent as at 30 June 2019.

Venture capital mandate

Earlier this year, NZ Super received a mandate from the government to establish an NZ$300 million venture capital vehicle. The superannuation fund has appointed New Zealand Venture Investment Fund (NZVIF) to manage the new fund-of-funds.

The wealth fund said it has spent the last year working on the legislation, investment structure and mandate parameters of the new VC fund along with representatives from Treasury, the Ministry of
Business, Innovation and Employment and NZVIF.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.