The Government Superannuation Fund (GSF) has booked a -3.7 per cent loss for the 12 months to June 30 in a topsy-turvy year that saw the Annuitas-managed investments outperform by more than 7 per cent.
According to the just-published GSF annual report, the now $4.9 billion fund finished the 12-month period 7.1 per cent ahead of its reference portfolio – a blend of indices comprising 70 per cent global shares, 20 per cent international fixed income and 10 per cent NZ equities.
“The Fund’s returns are now ahead of the Reference Portfolio over all periods, having recovered ground lost in the bull market in financial years 2019 and 2020,” the report says.
Since inception in 2001, the GSF fund is just 0.01 per cent above the reference portfolio after fees.
GSF chair, Anne Blackburn, says in the report: “Like all investors, GSF experienced a rollercoaster ride over the 12-month financial period, with a close to 7% positive return in the first half of the year followed by a loss of slightly greater than 10% in the second half of the year.”
Most of the outperformance in 2022 came via private equity returns of 43.6 per cent and 21.9 per cent for respective global and NZ allocations to the asset class.
“Active positions added significantly to returns. Private equity was the largest source of value added, partly because of the time lag in relation to the revaluation of private equity investments,” the GSF report says. “Insurance-linked securities out-performed the Reference Portfolio and active managers also contributed positively overall.”
The GSF has about $180 million invested across catastrophe bond managers Nephila and Fermat, which returned 14.5 per cent during the financial year against the benchmark 13.5 per cent: but the so-called ‘cat bonds’ may suffer significant losses in the wake of Hurricane Ian disaster in Florida this September.
However, the fund has yet to recoup enough to meet its goal of adding 1 per cent on average each year from “alternative return sources, active managers and strategic tilting programme”.
“Added value in the last ten years was 0.6% pa over the Reference Portfolio,” the report says. “… During the year, the Fund increased its private equity investments further and exited its style premia investments, re-investing the proceeds into global equities and bonds.”
As reported this August, Annuitas dumped the quant manager, AQR from both the $1.8 billion National Provident Fund and the GSF. The GSF cut AQR from a $365 million mandate in March this year, the annual report shows.
But the relative outperformance of fund has also triggered a budget blowout for the GSF as investment management costs exceeded $63 million against the target of $30.4 million.
“The main reason for the higher than budgeted number is the higher than forecast performance fees paid to Investment Managers,” the report says. “These fees were paid as a result of the Fund Managers having a smaller negative return than the market benchmarks.”
Overall GSF operating expenses topped $73 million for the 12-month period compared to the forecast $41.3 million with a slight year-on-year increase in Annuitas fees, which rose to $2.9 million from over $2.7 million in 2021.
It is understood Annuitas will soon announce a new chief executive to replace Simon Tyler, who departed the firm this September after 10 years in charge. Annuitas chief financial officer, Fiona Morgan, has stepped into the CEO role in the interim.
The GSF was established to defray some of the long-term pension expenses of government employees under now-closed defined benefit schemes. During the latest 12-month reporting period, the scheme paid out $920 million among about 43,000 pensioners while roughly 3,600 members are still contributing.