The New Zealand Superannuation Fund delivered a better-than-expected return in the year to June and is looking to take advantage of investment opportunities against a backdrop of rising global geopolitical and financial volatility.
"Equities have done well this year, around the world and in New Zealand as well. That adds up to better performance than you would expect," chief executive Matt Whineray told BusinessDesk.
"If markets perform and we can add value, that's obviously the best outcome for us and that's what has happened this year," he said.
The NZ Super Fund - set up to help fund national superannuation payments - returned 12.43 per cent in the year to June 30, beating its passive reference portfolio market benchmark by 2.02 percentage points and exceeding the average return on Treasury Bills by 10.71 percentage points.
It ended the year at $39.37 billion, up $4b, and has returned 10.4 per cent since inception.
However, Whineray noted that the world is changing: "We saw the Fed raise yesterday, global growth is starting to slow down a bit, inflation is starting to come up. That makes everybody a little bit more anxious."
Against that backdrop, the fund is maintaining higher than normal levels of liquidity in the portfolio - assets that can be sold easily to meet its obligations or to fund new investments.
"We maintain more liquidity in the fund, so we have more liquid assets available to meet obligations in the short term but also to take advantage of any declines in the market," he said.
"We want to make sure we are ready to deal with volatility so we can weather it and take advantage of it," he added. "If markets fall we will add risk in those markets; if they rise we will sell them, or underweight or short them."
In terms of the portfolio, where 65 per cent is in global equities and 10 per cent is in fixed income, he said "we continue to think that bonds are still expensive everywhere around the world".
In equity markets, "some are a little bit richer. We think the US is a little bit richer, but others we think are still at little bit either at fair value or slightly below fair value." While the overall equity exposure is reasonably flat there are some "slight underweights and overweights and we will move those around," he said.
On other investment areas, he said the Super Fund was very keen to develop the multi-billion-dollar light rail project in Auckland. The Super Fund teamed up with Canadian institutional investor CDPQ, which manages approximately C$350b of funds worldwide and has submitted a proposal to NZTA. "That's a longer-term project, but one we are quite active on at the moment," said Whineray.
He also said the Super Fund has had discussions with the Government about KiwiBuild - the Government plan to build 100,000 affordable homes over the next decade.
"We continue to talk to different arms of local and central government about what the opportunities are domestically. The most obvious places are really infrastructure and housing," he said.
This year also marked the first year that Government contributions resumed after an eight-year suspension, with the Government contributing $500 million in the year. Since inception in 2003, the Government has contributed $15.4b to the fund, which has paid $6.4b in New Zealand tax.