NZ Super underperforms investment benchmark for only third time in 13 years
Wednesday, 13 September 2023
The amount of money the Government has saved in the New Zealand Superannuation Fund jumped 11.9% to $65.4 billion in the year to the end of June.
However, this year, for the first time since 2020 and only the third time in 13 years, its investment team can’t take credit for its performance.
After taking into account its own costs, the fund very slightly underperformed the 12% return of its “reference portfolio” that it measures itself against and which estimates how big its returns would have been, hypothetically, had it just passively invested in financial markets.
The jump in the value of the NZ Super fund had already been fully factored into the Treasury’s Prefu financial forecasts accounts that were released on Tuesday, so don’t sweeten the outlook for the Government debt.
The fund was set up in 2001 to help pre-pay for some of the costs of funding future superannuation payments.
The Treasury is banking on NZ Super making a solid 6% annual return on its investments in the year ahead, forecasting the fund will just top $70b by the end of June next year, with similar growth assumed for the following three years out to 2027.
Its latest result came after a very different performance in the year to June 2022, when the fund fell in value by $3.3b due to falling prices for shares and bonds but handsomely beat its reference portfolio, resulting in big pats on the back for its investment team.
On an annualised basis, the NZ Super fund has still outperformed its reference portfolio by about 1.7% over the past five years.
Chief executive Matt Whineray, who will leave the job at the end of the year, said the growth-oriented nature of its portfolio meant that returns generated by the NZ Super Fund would continue to vary from year-to-year, as would the performance of individual investments.
“What matters to a long-term investor like us is total fund performance over time. Over the life of the Super Fund our active investment strategies have generated $15.1b more than a passive, index-linked strategy would have achieved.”
The investment outlook remained challenging, he said.
“Core inflation remains high in many markets, leaving open the possibility of further interest rate rises. At the very least, it would seem any decrease in interest rates may be more gradual and further away than might have been expected.
“Our expectation is that will lead to lower returns overall as central banks prioritise reducing inflation over fostering economic growth; however, we are confident the Super Fund will continue to add value for New Zealanders,” he said.
CORRECTION: An earlier version of this story stated that the size of the fund was $64.5b, rather than $65.4b. Incorrect information was provided by the fund. (Amended 3.39pm, September 13, 2023)