KEY POINTS:
The New Zealand Superannuation or "Cullen Fund" now has almost a quarter of its assets invested in New Zealand and that proportion is likely to rise.
Board chairman David May told Parliament's commerce select committee yesterday the fund's assets totalled $10.1 billion at June 1 and $10.8 billion
by the end of September.
The fund has drawn considerable criticism for its decision to not invest more in the New Zealand sharemarket and in local infrastructure.
It initially allocated 7.5 per cent to New Zealand equities.
"We were cautious about putting any more in because we would be a price-maker and we didn't want that," said May.
But although the fund now has 7.6 per cent in local listed companies, its total New Zealand investments account for 22 per cent of its assets.
Chief executive Paul Costello, who finished at the fund yesterday to take up a similar role with Australia's Future Fund, said the purchase of a share in the Kaingaroa forest in the central North Island had lifted that to about 23 per cent.
May said the fund had always had substantial fixed interest investments in New Zealand, "but now we've added to other areas like property, timber and private equity and we see that figure in those areas increasing".
Last year, the fund's big objective was to move from equity and fixed interest investments into "alternative assets such as forests, property, commodities, infrastructure and private equity".
It had set the target of having 20 per cent of its assets in alternative investments by the end of next year but had already reached that target with the purchase of the forest stake.
"We've gone faster than we've expected."
The fund, set up to meet part of the pension bill of the baby-boomer generation, is charged with maintaining a rate of return at least 2.5 per cent above the risk-free rate - around the current Treasury bill yield - over a rolling 20-year period.
Yesterday May said the fund had returned 19.2 per cent against the risk-free rate of 6.77 per cent last year.
In the three years since its inception its average yearly return has been 14.9 per cent against a risk-free rate of 6.2 per cent.
"That, to a large extent, is luck," said May. "Equity markets, particularly global equity markets, have been extremely good."
May also outlined the fund's commitment to "responsible investment".
It was one of 27 founding signatories of the United Nations Principles for Responsible Investment this year.
As such it would take account of environmental, social and governance issues in making investments.
"If that is done in the right way we can improve investment returns over the long term," said May.
Last month the Green Party called on the fund to divest its $43 million stake in ExxonMobil, saying the oil company was financing groups that deny climate change.
Meanwhile, it may be March before the widely respected Costello's replacement starts at the fund.
May said a head-hunting agency was "scouring the whole world" and the aim was to have the new chief executive appointed by the end of the year.
"Obviously depending on how long it takes that person to exit their current position it could be as late as March next year before somebody comes on board."
Chief financial officer Stewart Brooks and chief investment officer Paul Dyer are acting as joint chief executives.
- Additional reporting NZPA