NZ Super’s annual report tackles portfolio resilience

In NZ Super Fund’s recently released 2018 annual report, Matt Whineray, the fund’s new CEO, not only looks at the New Zealand superannuation fund’s performance and current investment strategy, but also lays out how the organization is approaching the next big economic downturn. In addition, he provides information on the fund’s progress in implementing a climate change investment strategy announced in 2016.

Currently, the fund has chosen to weigh itself toward growth assets to generate long-term returns for New Zealand taxpayers, despite exposure to short-term volatility. Total returns for the NZ$39.4 billion (US$25.7 billion) fund stood at 12.43 percent for the 2017–2018 fiscal year, increasing the fund’s size by NZ$4.0 billion (US$2.6 billion).

And, in comparison to its global peers, NZ Super was able to lower its costs and add more value, according to 2017 data provided by CEM Benchmarking, which assessed NZ Super on these factors against 245 funds globally, with a focus on 19 funds with active investment management strategies and similar risk profiles to NZ Super.

In the report, NZ Super also works through a simulation of how the fund would be affected if the global financial crisis of a decade ago repeated itself. Based on the simulation results, the fund would lose approximately half its value. Given the fund’s current size, this would equate to NZ$20.3 billion (US$13.2 billion), or –52.6 percent. NZ Super determined, however, that it would be able to recover the lost value within a 20-month period — provided it stayed the course with its investment strategies through a market cycle.

“The major risk to the fund is not that it will experience significant volatility in its returns — we know that will happen,” says Whineray. “The major risk to the fund is that we lose our nerve, close down our investment positions and lock in the losses experienced in the crisis. This would significantly impair the ability of the fund to fulfill its long-term purpose.”

With respect to climate change, the report discusses the importance of factoring in the risks and opportunities related to climate change into NZ Super’s investment strategies and ownership practices, particularly given the fund’s long-term horizon and purpose.

“Our view is that ESG integration is both good for returns and for the advancement of our objective to be active owners and responsible investors,” states Whineray. “As such, we look to

integrate responsible investment considerations throughout our investment process. We also acknowledge the wider beneficial impact on corporate practice, regulatory standards and the healthy functioning of capital markets from active, constructive engagement.”

As of June 2018, NZ Super — which primarily invests overseas — had the following asset allocations: timber (32 percent), NZ listed equities (27 percent), other private companies (14 percent), fixed income (12 percent), rural land and assets (6 percent), Metlifecare (4 percent), expansion capital and private equity real estate (3 percent), and infrastructure (2 percent).