The Annuitas-managed Government Superannuation Fund (GSF) has been urged to phase-out its underperforming, expensive global private equity model among a slew of recommendations in the latest five-yearly statutory review.
In a dense 93-page report, the Geneva-based consultancy, Pnyx argues the GSF should gradually exit the global private fund-of-funds portfolio, currently managed largely by US firm Stepstone, to a mix of “direct fund commitments, co-investments and club deals” for the asset class.
According to the report, ditching the “exclusive” fund-of-funds (FoF) approach could free-up some $6 million of annual fees on the offshore private equity portfolio of almost $1 billion – the second-biggest asset allocation for the $5.8 billion GSF behind listed international shares.
“This should not be framed as a sudden internalisation of the full [global private equity] programme, but as a staged review of implementation options,” the Pnyx review says. “A practical route would be to allocate only a fraction of the current FoF fee budget to strengthen internal oversight and manager selection capability, supported by selective external advice where needed.”
Stepstone, appointed in 2018, runs 81 per cent of the GSF global private equity money with the remainder managed by another fund-of-funds firm, Makena, in run-off phase.
The GSF investment path has travelled more-or-less in line with its passive, notional reference portfolio since inception in 2001 while outperforming the benchmark by more than 1.6 per cent over the five years to the end of last year.
But despite delivering nominal five-year annualised returns of almost 17.2 per cent, the global private equity sleeve has missed its benchmark by about 1.9 per cent during the period – and 1.4 per cent since inception through to 2021 – to drag down the overall GSF performance.
The global private equity allocation “has not fully fulfilled its intended role, not delivering the illiquidity premium expected relative to listed markets, a shortfall that is not justified given its high management fees, long lock-ups and operational complexity”, the report says.
While NZ private equity (managed by a mix of five well-known firms) has outperformed for the fund over the five-year period to end 2025, the portfolio has lagged during the last three years, which coupled with high annual costs of circa 2 per cent, requires “close monitoring”.
However, Pnyx found the GSF global listed equities multi-manager portfolio delivered above-benchmark returns of almost 1.6 per cent for the five years to the end of 2025. The report notes T Rowe Price was terminated as an underlying international shares manager last November while another relatively recent appointment, the quant-based QTron, saw a “phased exit” ending this March.
In other GSF manager movements, Brandywine Global was dropped from the global fixed income panel last November (leaving PIMCO and PGIM) as Amova arrived in the same month to run a new NZ sovereign bond mandate.
The report recommends the NZ shares portfolio (split between Harbour and Devon) should be reviewed and/or introduce a “passive manager may help smooth excess returns”.
Both catastrophe bonds – now managed largely by Elementum, appointed last year after GSF fired the high-cost Fermat – and life settlements have been “successful” diversifiers for the fund, Pnyx found: the life settlements portfolio is in run-out phase on forecast poorer returns for the asset class, with capital to be recycled into global bonds.
Although the GSF has a well-diversified portfolio, especially for a fund of its size, the report suggests other asset classes “such as infrastructure, productive land, governance/engagement funds, CTAs, thematic private equity, and emerging-market champions” could push out the efficient frontier.
The review also says the fund could upgrade its dynamic asset allocation overlay “to include total portfolio readjustment in addition to mean reversion harvesting strategies”.
Earlier this year, the boards of Annuitas and the two funds it manages – the GSF and the National Provident Fund – adopted unified membership as part of an efficiency drive.
According to Pnyx, while the rationale of the governance shake-up was “straightforward”, the move came with some downsides, too, including the fact “any blind spot is now shared across all three entities simultaneously”.
Regardless of any operational niggles and possible technical improvements, the consultant says the government should “develop a long-term plan” for Annuitas to continue even as the defined benefit GSF and NPF schemes fade out over the next few decades.
“The main matter to address would be the preservation of this valuable asset beyond its current lifespan,” the report says, flagging a potential “measured expansion into, or combination with, adjacent CFI [Crown Financial Institutions] or private capital pools where appropriate”.
WTW (Willis Towers Watson) published the previous GSF statutory five-yearly review in 2021.
Founded in 2019 by Elisabeth Bourqui and Didier Cossin, Pnyx now has offices in Canada, the UK, Switzerland and Abu Dhabi. Bourqui was chief operating investment officer for the US pension giant California Public Employees Retirement System (CalPERS) until 2019.
Pnyx hill in Athens, considered the birthplace of democracy, regularly hosted up 20,000 citizens of Ancient Greece to discuss affairs of the day. The word ‘Pnyx’ is derived “from the Greek word pyknos, meaning dense”, the ‘This is Athens’ website.