The 1.03% after tax surplus (4.7% before tax) compares favourably with the 0.48% after tax return of the median superannuation scheme in the Watson Wyatt Investment Performance Survey of 93 schemes for the same period.
The chairman of the GSF Authority, Basil Logan, said the Fund’s asset classes performed in line with their respective benchmarks, and all except International equities showed positive returns.
Improved returns from International equities over the latter part of the year almost offset the 16% negative return in the first quarter. This illustrated the volatility to be expected in that asset class and it confirmed the need to assess investment performance over a long term, he said.
This is the second report by the GSF Authority, which manages the Fund and is in the process of completing the transition of the investment assets of the Fund from entirely New Zealand fixed interest, to those consistent with best practice investment portfolio management.
During the year the Authority conducted a full review of its investment policies, standards, and procedures, and tested the assumptions underlying the long term strategic asset allocation.
As a result of that review the Authority confirmed its strategic asset allocation of 35% fixed interest and 65% growth assets, but revised the makeup of growth assets to increase the allocation to New Zealand equities, from 12.5% to 15% of the total portfolio.
At the same time a new allocation of 7.5% was made to alternative growth assets such as property and private (unlisted) equity. As a result the allocation of international equities was reduced from 52.5% to 42.5%. Research into investment structures and vehicles for investing in alternative growth assets will take place over the next year.
At year end New Zealand equities were marginally overweight (15.7%), the new strategic asset allocation and international equities underweight (40.7%).
In line with generally held expectations of lower investment returns worldwide, the Authority also revised the long term investment objective for the Fund. The new objective is to achieve an average rate of after tax return of 2.5% a year (previously 3%) over the returns on a portfolio of NZ Government Stock measured over rolling 10 year periods, with no more than 10% chance of an after tax loss of more than $100m.
“The Authority board is satisfied that, despite the current volatility in international economic and financial markets, the Fund will achieve its long term return objective,” Logan said.
The board has developed a framework to meet its policy requirement to ethically invest and to “avoid prejudice to New Zealand’s reputation as a responsible member of the world community”. It is currently reviewing the performance implications of various options. Logan stated “the Authority wished to be satisfied that implementation would be practicable and cost effective”.
GSF has obligations to its members for up to 60 years and was closed to new members in 1992.
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