NZ Super Fund manages 19.2pc return in June year

David May attributed the return to buoyant global equity markets. Picture / Richard Robinson

The New Zealand Superannuation Fund, known as the Cullen Fund, earned $1.44 billion in the year to June for a 19.2 per cent return.

In the 12 months to June 30, assets of the fund grew from $6.6 billion to $10.1b (net of current and deferred tax).

The growth consisted of $2.3b in Government contributions and $1.4b in pre-tax investment income.

The fund's objective, over rolling 20-year periods, is to exceed, before tax the risk-free rate of return (measured as the yield on 90-day Treasury bills) by an average of at least 2.5 per cent per annum.

The 19.2 per cent rate of return for the June year (after costs and foreign tax, but before New Zealand tax exceeded the risk-free rate of return of 6.77 per cent by 12.43 percentage points.

"In dollar terms, it equates to approximately $930 million above the risk-free rate of return," chairman David May said.

In 2004/5, the return was 14.13 per cent.

Opponents of the Cullen Fund, which was set up by Finance Minister Michael Cullen to smooth the cost of government pensions in the middle of the century, argued New Zealand would get a better return by repaying debt than investing in such a fund.

Since the investment of fund assets began on September 30, 2003, the return has averaged 14.89 per cent against the average risk-free rate of 6.20 per cent.

"This is our third year of very good results thanks, largely, to buoyant global equity markets," Mr May said.

"We have deliberately invested relatively heavily in these markets because, over the long-term (20 years plus), they are expected to outperform more stable investments.

"The fund expects shorter periods of substantial out performance as well as substantial underperformance.

"We have been fortunate that our first three years have been ones of out performance."

The fund is losing its chief executive Paul Costello to Australia's Futures Fund, which has to a large degree been modelled on the Cullen Fund.

Mr May said the contribution from the fund's active equity managers had been particularly pleasing.

Collectively, on average, they had outperformed their respective market indices by 3.5 percentage points "a remarkably good result".

Equally importantly, the fund had made significant strides in diversifying its investments.

The number of distinct investment manager mandates had increased from 22 to 34, including new investments in property, infrastructure, commodities, private equity and timber.

In March 2005, the fund set a target of increasing the investment in these more diverse asset classes to 20 percent of total assets by June 2007 and this target had largely been met.

Dr Cullen said today's result capped off a great week for the Government's superannuation strategy.

"On Wednesday night, the KiwiSaver Bill passed its third reading. This was another important milestone in securing the long term financial security of New Zealanders."

He said the New Zealand Superannuation Fund, the State Sector Retirement Savings Scheme (SSRSS) and KiwiSaver were all significant planks in the Government's strategy of preparing for the future.

"I am also heartened that 33,333 civil servants are now members of the SSRSS, an increase of 17 percent for the June year."

Allocation of the fund's assets:
(Sector value (NZD) percent of assets)

New Zealand Equities $767.2 7.6
New Zealand Fixed Interest $966.7 9.6
New Zealand Property $202.2 2.0
Global Equities (Large Cap) $4,069.7 40.2
Global Equities (Small Cap) $867.1 8.6
Global Equities (Emerging Markets) $360.4 3.6
Global Listed Property $529.4 5.2
Global Infrastructure $388.2 3.8
Global Fixed Interest $984.9 9.8
Timber $368.5 3.6
Private Equity $17.7 0.2
Commodities $508.0 5.0
Cash $78.7 0.8
* TOTAL $10,108.7 100

- NZPA