Report proves contributions freeze bad call.


's hat tip to the New Zealand Superannuation Fund was PR manna from heaven after all the hoo-haa a few months back over its ill-fated Portuguese excursion.

Research by JPMorgan Asset Management found the Super Fund has been the world's best-performing sovereign wealth fund over the past five years, with annual investment returns of 17 per cent.

It was just what the doctor ordered after February's revelation that the fund had written off a $200 million loan to Portugal's Banco Espirito Santo, which collapsed last year. That announcement sparked the kind of bruising media coverage you would expect when a couple of hundred million taxpayer dollars disappear.


But the JPMorgan research is a good reminder that the nearly $30 billion Super Fund - whose success is pretty important for most New Zealanders who hope to retire one day - appears to be on the right track.

The next best performing fund in the report was the Government of Singapore Investment Corp, or GIC, which posted five-year returns of 12.4 per cent per annum.

Illiquid answer

A possible explanation for the Super Fund's outperformance can be found in a breakdown of portfolio allocations across the nine sovereign wealth funds included in the research.

JPMorgan notes that the four top-performing funds - one each from New Zealand and Australia, and two from Singapore - all allocated more than a fifth of their portfolios to illiquid investments such as real estate, infrastructure, hedge funds and private equity.

Twenty-one per cent of the Super Fund's overall portfolio is invested in illiquid markets, including 3 per cent in private equity, 16 per cent in real estate (the highest proportion in that asset class of the nine funds in the report) and 2 per cent in hedge funds. Its local investments in this space include the Kaingaroa Timberlands, rural land and IT firm Datacom.

JPMorgan said long-term potential seemed skewed towards "real assets".

Riding equity wave

Of all the funds that featured in the report, the Super Fund had the highest allocation to public equity markets, at 67 per cent of total investments. As we know, most sharemarkets have delivered stellar returns over the past five years. And the Super Fund has also benefited from holding its nerve during the global financial crisis, when it purchased stocks that had been heavily sold off.

"As the world has been recovering post global financial crisis, prices have shifted back up towards fair value and we've been able to ride that," chief executive Adrian Orr said last year.


Local stocks in the Super Fund's portfolio include New Zealand Oil and Gas, Fisher & Paykel Healthcare and Fletcher Building.

Bad call

All in all, the report is a major endorsement of the Super Fund's strategy, spearheaded by chief investment officer Matt Whineray.

The research also makes it abundantly clear the Government made the wrong call when it suspended contributions in 2009.

The Super Fund estimates the fund would have grown to $47 billion by today, $17 billion more than its present value, if contributions had continued.

Hindsight is, of course, a wonderful thing.

Finance Minister Bill English doesn't have a crystal ball.

He had no way of knowing in July 2009 that equity markets would rally for the next six years.

But New Zealanders have paid the price for the suspension decision, which was almost certainly influenced by an ideological aversion to the fund that was established by the Labour Government.

Contributions are not expected to resume until 2020 at the earliest.

Profits fly

Forsyth Barr has lifted its profit forecasts for Air New Zealand following the company's market update this week.

But the broker is also warning that the airline's bottom line will eventually be impacted by a weaker currency - which increases the price of fuel, while also making Kiwis less inclined to travel overseas - and increased competition.

Qantas subsidiary Jetstar last week announced plans to beef up its domestic operations in this country, which will break the national carrier's stranglehold on a number of regional routes.

Air New Zealand said on Wednesday that underlying pre-tax profit for the current financial year, excluding returns from its investment in Virgin Australia, would be in the range of $520 million to $530 million.

Forsyth Barr has lifted its underlying pre-tax profit forecast by 9 per cent to $524 million in 2015 and 8 per cent to $587 million in 2016. Their 12-month target price for the stock was left unchanged at $3.

Air New Zealand shares closed at $2.54 last night, 6.1 per cent above the $2.395 it closed at on Thursday last week after the Jetstar announcement.

Upgrade for CBL

CBL Insurance will hope a rating upgrade will help its chances of pulling off a transtasman sharemarket listing.

US ratings agency AM Best has lifted the Auckland-based credit risk insurer's international financial rating to B++ (good), with a stable outlook, while CBL's issuer credit rating was lifted to bbb (stable).

The company has been meeting fund managers in New Zealand and Australia as it forges ahead with plans to raise up to $140 million through a dual NZX/ASX listing this year.