
The NZ Superannuation Fund (NZS) has forecast an almost 30 per cent jump in employee numbers over the current financial year and total staff costs of more than $48 million.
In its recently-published ‘statement of performance expectations’, the NZS says the staff cost estimates are based on an assumption that the headcount “will increase from the budgeted level of 157.8 as at the end of March 2019 to 171.4 full-time equivalent employees by 30 June 2020”.
However, the real full-time headcount at March 31 this year was well below budget at about 133, requiring the NZS to boost net staff numbers by almost 40 to meet the latest forecast.
“In the event that the Guardians are unable to recruit the additional headcount as forecast, actual results may vary materially from the forecast,” the NZS statement says. “Any variance in actual headcount is likely to result in a material reduction of expenses, resulting in a corresponding decrease in revenue received from the Fund.”
Currently, the NZS has six vacancies advertised including a senior economist role.
The $41 billion plus sovereign wealth fund has budgeted for total operating costs – including external manager performance fees – of more than $163 million over the 2019/20 annual period – or 0.38 per cent of projected funds under management (FUM).
Performance fees, which the NZS says are “better described as an offset against returns than a cost”, have been booked at almost $27 million with a reasonable degree of uncertainty.
“The forecast cost of managing the Fund in 2019/20 – excluding performance fees, is $136.6 million or 0.31% of expected average funds under management, compared to the forecast for 2018/19 of $129.4 million or 0.32%,” the statement says.
Despite dropping over 4 per cent in May this year, the NZS put the mid-range of forecast returns for the 2019/20 year at 8.7 per cent. Since inception in 2003 the NZS has racked up average returns of about 9.9 per cent per annum after costs (but before NZ tax).
For the 12 months to the end of May, the NZS reported a return of 3.44 per cent – equal to 1.63 per cent above its reference portfolio.
This year, the NZS also plans to review both the reference portfolio settings (a five-year regulatory requirement) and staff remuneration settings.
Meanwhile, the approximately $4.3 billion Government Superannuation Fund (GSF) projects gross returns of 7.5 per cent over the 2019/20 fiscal year and 6.7 per cent after expenses (of $43 million) but before tax: based on those figures, after-tax returns would be 5.3 per cent.
“Investment management fees (including custody costs) are forecast to decrease from the estimate of $34.102 million in 2019 to a forecast of $31.966 million in 2020,” the GSF statement of performance expectations says. “This is because returns from equity investments are forecast to be lower.”
While investment costs represent about 0.75 per cent of FUM, total GSF operating expenses (including scheme administration and other costs) should be above $43 million in the current reporting year – or about 1 per cent of FUM.
The GSF, which partly defrays the cost of the now-closed defined benefit government employee pension scheme, has recently tweaked its investment strategy.
“As part of the strategy the Authority has diversified away from equity risk into alternative sources of additional return and engages skilled active managers as it believes they can add value after allowing for additional fees and costs,” GSF chair, Cecilia Tarrant, says in the statement. “Active investment management has been employed broadly by the Fund since 2008 and has added value net of incremental fees.”