$4b super fund roars past target

By ELLEN READ and NZPA

The New Zealand Superannuation Fund has beaten its targets in its first nine months and is planning to broaden its exposure.

Figures released yesterday show it earned an annualised 10.4 per cent in the nine months to June 30 - the first period in which it was invested.

The fund, which is now worth about $4 billion, has to beat, before tax, the risk-free rate of return (basically Treasury bill yields) by an average of 2.5 per cent over rolling 20-year periods.

The 10.4 per cent return was well ahead of that 5.3 per cent target for the nine months.

Its performance in each sector was broadly in line with market indices (after fees).

Fund chairman David May cautioned against reading too much into the performance over such a short time, given the long-term aim of the investment.

"Our focus will always be on building an investment strategy to deliver over future decades," he said. "Results over a period as short as one year should be seen in that context."

The Treasury has estimated the fund's long-term rate of return at 9.4 per cent - slightly above the fund's estimate of 9.2 per cent.

As the fund return was given pre-tax, it is hard to compare it with others of its type.

The average return for diversified growth superannuation funds was 9.14 per cent (after tax and fees) in the year to July 31.

Because the year to June has been so strong for equity markets, fund chief executive Paul Costello said returns were likely to be slightly lower over the next decade.

"We realise that time was on our side," he said.

"Inevitably, the future has to be a little more tame than it was a year ago ... and that's all the more reason to move part of our portfolio into other areas so that in the not-so-good years we have shelter from that storm."

Fifteen managers have now been appointed, covering a range of mandates ranging from New Zealand equities (9.94 per cent), New Zealand bonds and cash (12.1 per cent), international equities (63.9 per cent), and international bonds (14.06 per cent).

The fund deliberately did not invest initially in property and so-called growth assets - forestry, private equity, infrastructure, commodities and hedge funds - but will be looking to move into these during the next year or so.

Costello said the beauty of the "growth" assets was that to varying degrees they were not closely correlated to equity markets and so often provided good returns when shares were falling.

"That's a diversification strategy which we are keen to follow now because we are very aware that at the moment our exposure is built around listed markets and, as you know, they flick around."

The fund's largest local share investments are $66.8 million in Telecom and $31.9 million in Contact Energy.

The fund, set up to smooth the future costs of pension payments, began investing last September.