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Don't expect returns to continue: NZ Super Fund

The New Zealand Superannuation Fund returned 13.89% over 2014 but there’s a warning 2015 may not be as good.

Thursday, January 29th 2015, 3:52PM

Chief executive Adrian Orr said a heavy weighting to global equities and a decline in the New Zealand dollar had combined to deliver strong returns. The Fund’s 13.89% return exceeded a 12.42% return for its passive Reference Portfolio benchmark and a 3.08% return for Treasury Bills.

Treasury Bills are a measure of the cost to the Government of contributing to the Fund instead of paying debt.

Orr said he expected that the Fund would deliver more muted returns over the coming year.

“Many asset classes are nearing full value, economic growth remains patchy globally, and it is becoming harder to find good investment opportunities.”

Over the long term the Fund is expected to generate average returns of 8% to 9% a year, based on current portfolio settings.

“While we are confident that the Fund will exceed its benchmarks over time, the very high returns of the last few years are unlikely to be repeated – they are the exception, not the rule.”

The Fund has returned 19.6% p.a. over the last three years.

Orr said the Fund’s long time horizon, with no payments forecast until 2029/30, meant it was in a position to take on more investment risk than many other funds.

“We are positioning the Fund for the long term. There may be times when the Fund’s performance lags the market. We are prepared to weather this, sometimes for an extended period, in order to get the best long-term outcome.”

He said that while the Fund had reduced the overall level of risk it was taking in recent months, it continued to have a strong weighting to growth assets.

Noting current volatility in global markets, Orr said stakeholders could expect to see sizeable changes in the value of the Fund over short periods. “The size of the Fund can increase or decrease by several hundred million dollars on a daily basis – this is normal and within expected parameters,” he said.

“It’s important to retain perspective and understand that these market fluctuations can work to the advantage of long-term investors such as the Fund.”

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