The Government Superannuation Fund (GSF) reported a sub-benchmark but still healthy 10 per cent return for the 12 months to the end of June with private equity proving the main drag on performance.
According to the GSF annual report released last week, the now $5.1 billion legacy government employee pension fund added more than $500 million to the bottom line in after-fees investment returns for the annual period.
However, GSF chair, Anne Blackburn, told members while the result comfortably outstripped the NZ government bond index annual return of -0.8 per cent, it “lagged behind the 12.2% return for the Fund’s benchmark Reference Portfolio”.
“Despite the relative performance in this financial year, the Fund’s returns are comfortably ahead of the Reference Portfolio over the last 3 years,” Blackburn says in the letter to members.
The report shows the GSF has mostly tracked its passive reference portfolio since inception in 2001 but only regained the NZ bonds plus 2.5 per cent target height in 2021 after falling behind in the wake of the global financial crisis.
“We aim to add 0.8% pa on average over ten-year periods from alternative return sources, active managers and strategic tilting programme,” the report says. “Added value in the last ten years was 0.2% so this is some way behind where we would like to be. More positively, we have achieved these Reference Portfolio matching returns at a lower level of risk (8.0% vs 9.0%) so the difference in return per unit of risk taken is consistent with our expectations.”
For the 12 months to the end of June this year, the GSF saw benchmark-beating performances from its global bonds, global equities, life settlements and currency overlay portfolios while missing the catastrophe bond target by a wide margin and hitting just under par for NZ shares.
But both NZ and offshore private equities fell well under benchmark, returning 1.6 per cent and -1.7 per cent, respectively, versus index results of 12.3 per cent and 20 per cent.
“In large part this is due to the time lag in relation to the revaluation of private equity investments,” the report says. “The Fund’s investment in alternative assets, such as insurance-linked securities, did not materially impact on added value.”
The GSF, managed by Annuitas, uses Makena Capital Management and Stepstone for global private equity and a panel of six local managers for asset class in NZ.
In January this year the fund added the Movac Growth fund to the local private equity pool, one of only two changes to the GSF manager list during the reporting period that also saw PGIM join PIMCO and Brandywine Global for international fixed income duties.
The report also notes the GSF was more expensive to run relative to global peers over 2022 based on new figures from institutional fund cost analysis firm, CEM Benchmarking.
“[CEM Benchmarking] found that GSFA costs in 2022 were above benchmark (1.045% vs 0.740%). 2021 was also slightly above benchmark (0.886% vs 0.755%),” the GSF report says. “This was predominantly due to performance fees paid to global equity managers who significantly outperformed their benchmark. Also, the Fund has a larger % of its public equity portfolio actively managed and a larger % allocated to fund of fund mandates within global private equity relative to peer funds.”
The government topped up the GSF to the tune of $706 million during the year to cover pension commitments for the period: total long-term government-guaranteed pension liabilities for the scheme ballooned to about $7.5 billion as at June 30 compared to the forecast $6.4 billion.
Annuitas, which also manages the $1.7 billion National Provident Fund (NPF), reported 12 staff at the end of June with two of three full-time vacancies filled post balance date.
The Wellington-based investment and scheme management business saw several senior staff exit over the reporting period including chief, Simon Tyler, head of investments, Paul Bevin, and asset allocation specialist, Keith Poore.
Tim Mitchell, previously WTW (Willis Towers Watson) head of global consulting, took over as Annuitas chief this January while former Mint Asset Management CIO, Anthony Halls, was named to replace Bevin in July.
The GSF annual report notes Annuitas has joined two “global peer networks” during the year including the International Centre for Pension Management and the Thinking Ahead Institute (a WTW production).
In August the NPF, which has a March 31 financial year end date, reported a 2 per cent loss.