NZ Super Fund chief executive Matt Whineray says the days of extraordinarily high returns, like the 29 percent growth the fund recorded in 2020-2021, are in the past. (File image) Photo: 123RF
The value of the New Zealand Superannuation has fallen by nearly 7 percent, as its investments were battered by volatile financial markets, high inflation and rising interest rates.
The fund, created 21 years ago to help pay future pension costs, reduced by $3.3 billion to $55.7b in the year ended June, after last year's record gain.
The Super Fund had returned about 9.7 percent per annum since it was launched in 2003.
"While there is no hiding that market conditions are challenging - the first six months of 2022 have seen the worst global equity market performance since 1970 - the Fund showed resilience and is performing well," NZ Super Fund chief executive Matt Whineray said in a statement.
NZ Super Fund chief executive Matt Whineray Photo: Supplied/NZ Super Fund
"It might sound counter-intuitive to say we had a strong year with the drop in value of the Fund. However, a successful year for its active investment strategies cushioned the overall impact by delivering record value-added returns."
The fund's passive portfolio, which makes up 60 percent of its overall portfolio, fell 14.2 percent in the year.
However, the performance of its active investments helped it outperform the passive fund benchmark it uses by 7.3 percent, adding a record $4.5b in value.
The fund's "strategic tilting" approach, which focuses on buying when others want to sell and selling when others want to buy, was credited with fund's value-add performance, along with the performance of its timber and investment factor mandates.
Looking ahead, Whineray said the days of extraordinarily high returns, like the 29 percent growth the fund recorded in 2020-2021, were in the past.
"Higher interest rates both weigh on market performance and increase our internal hurdles for making direct investments in companies."
Financial markets were entering a "lower return period" and stakeholders should expect to see further ups and downs, he said.
In first two months of the current financial year, the fund had recovered $2b and now sits at $57.3b.
The Super Fund's investments are allocated with 63 percent in global shares, 16 percent in bonds, 4 percent in local shares, 5 percent in rural land and timber, with smaller amounts in private equity, infrastructure, and property.
Its major New Zealand investments include stakes in Kaingaroa Timberlands, Datacom, LabTests, Fidelity Life, and a range of investments in property, farmland, and small-medium size growth companies.