The NZ Super Fund has rebounded from last year's Covid-battered performance with a record annual return, but is warning it will not last.
NZ Super Fund chief executive Matt Whineray. Photo: Supplied/NZ Super Fund
The fund, created 20 years ago to help pay future pension costs, had its strongest annual gain of 29.6 percent to stand at $59.8 billion, an increase of $15 billion before tax in the year ended June.
Chief executive Matt Whineray called the result exceptional and proof of its investment strategy.
"This past year demonstrates the importance of sticking to our long-term investment strategies, which are designed to play out through market cycles. The fund has a portfolio mix that was well positioned to capture strong returns from rising asset values over the year."
He said the fund's investments have been made with a long-term aim to generate strong returns for when the government starts drawing down on the fund sometime in the 2030s.
The fund beat the return on short-term Treasury bills - a measure of the cost of government debt - by $13b, nearly 30 percent, while it also outperformed the investment fund benchmark it uses by nearly 2 percent.
The gains had been driven by the strong performance of global share markets and its active management approach.
"What this means is that the team has added $10.6b of value above what would've been achieved with a simple, market indexed, passive portfolio," Whineray said.
However, he expected markets would be become tougher despite easy central bank policies, which have fuelled the rise in prices for shares and property, and economies rebounding from the pandemic.
"We're possibly looking at a period of increasing inflation and rising interest rates. That combination should weigh on company returns and creates a challenging investment environment. We do not expect the outperformance of recent times to continue forever," Whineray said.
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, Kiwibank, Datacom, LabTests, Fidelity Life, and a range of investments in property, farmland and small-medium size growth companies.