Active management bets didn’t quite get the NZ Superannuation Fund (NZS) above benchmark during the 12 months to June 30 as a few key strategies reversed direction in the period, according to outgoing chief executive, Matt Whineray.
Whineray said the $65 billion fund saw an almost opposite year-on-year outcome from some of its active exposures with global macro, equity factor and unlisted asset, in particular, detracting from performance following bumper results in the 2022 period.
“But our strategic tilting was really strong,” he said.
In the June 30 wash-up, the NZS fund finished just 0.1 per cent behind its reference portfolio – the notional passive investment benchmark that returned 12 per cent for the annual period.
However, the actual fund return of 11.9 per cent after costs (but pre-tax) marks a return to positive territory, at least, after the almost 7 per cent loss in the previous financial year, albeit that the 2022 result outperformed the reference portfolio by more than 7 per cent.
The NZS currently has about two-thirds of the fund held in passive exposures with the remainder spread across a diverse range of in-house and external strategies.
As at the end of last year, the fund reported mandates with 50 third-party managers – including large passive global equities allocations via Northern Trust and State Street – and more than a dozen internally managed portfolios.
Over the last couple of years the NZS has increased the global equities weighting to factor-based strategies, outsourced to managers including AQR, Northern Trust, UBS and a portfolio advised by Robeco.
Last year, the fund also shifted the bulk of its passive global shares to an off-the-shelf ‘Paris-aligned’ low-carbon MSCI index from the previous bespoke benchmark. The move saw the actual NZS global share-holdings shrink by almost 90 per cent.
Whineray said the new, slimline approach to passive global equities has performed as expected since the transition last September, still closely tracking the broader MSCI index.
Meanwhile, the NZS has also unwound most of a fixed interest short position held in the tilting portfolio for the last 10 years, following the rout in bond markets last year.
“It has been a challenging position to hold at times,” he said.
Presiding over his last annual results release as NZS chief, Whineray said in a statement that the fund – completing 20 years of operation this month – should be judged on long-term performance metrics.
“Over the life of the Super Fund our active investment strategies have generated $15.1 billion more than a passive, index-linked strategy would have achieved,” he said.
“These active returns, together with the market returns achieved, mean that the Super Fund has earned $41.6 billion more for New Zealand than the cost to the government to fund it.”
Whineray ends a 15-year stint with the NZS this December, the last five as CEO after he formally replaced Adrian Orr in the role in June 2018.
“I’m looking forward to going to the beach,” he said, “if we have a summer this year.”
Recruitment firm, Johnson Partners, is leading the search for his successor.