Guardians of New Zealand Superannuation Fund (NZS) chairman, Gavin Walker, has hosed down expectations of continuing double-digit returns.
In a speech to board “stakeholders” last week, Walker said the average 21 per cent annual returns the NZS has earned over the last three years are likely to be “among the best years the Fund will experience for some time”.
“It sounds too good to be true! Certainly, if I saw returns of 21 per cent pa advertised for an investment product, I would be thinking that it was too good to be true,” Walker said in the speech.
“So a word of warning is needed – these high returns are very much at the upper end of what we expect the Fund to return – our five year return is at the 93rd percentile….
“On average and over the long-term we expect to earn the rather less exciting figure of 8 per cent pa – but which will still provide a handsome return to New Zealander stakeholders.”
He also called for the government to resume contributions to the NZS as soon as possible, noting the fund would have been worth $47 billion today – or 58 per cent more than the current valuation of just under $30 billion – if the annual state top-ups had not been halted in 2009 in a post-GFC budgetary measure.
Walker told the Wellington audience that “… the biggest risk that we as a Board face is that we are too conservative”.
“Meaning that we do not take enough investment risk – and ultimately, in 20, 30, 40 years’ time – when we are all out of the game, so to speak, – the Fund undershoots its long-term return objective,” he said.
“The Board continues to think deeply about this. We are, however, confident that the amount of risk the Fund is taking is appropriate and that our portfolio is well-diversified.”
Walker said the Guardians were also considering how to incorporate climate change factors into its investment strategy and the bests way to manage “our influence in the domestic capital markets appropriately”.
“The Fund will be invested in the NZX50 not just for the next year or two but for many decades to come – so we have a real interest in ensuring that New Zealand listed companies are also being managed for the long term and in line with best international practice,” he said.
NZS is currently managing over $1 billion of active local equities, of which over $800 million is currently looked after by its in-house team. The fund created an internal active local equities team in 2012 to manage an approximately $300 million ex passive portfolio. However, the in-house team has subsequently picked up $281 million from the suspended Milford Asset Management mandate and about $260 million managed by AMP Capital until last November.
It is understood the NZS is in the final stages of appointing a new manager for the ex AMP Capital portfolio.