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NZ Super Fund rebounds

Fuseworks Media
Fuseworks Media

Wellington, Oct 12 NZPA - The New Zealand Super Fund says it has benefited from the rebound in global equity markets, with a 15.45 percent return for the year ended June.

That compared with a 22.1 percent slide a year earlier.

Fund chairman David May said the return represented a 12.85 percent premium to the risk-free rate -- which for the fund is the return on 90-day New Zealand Treasury bills -- for the year.

"Certainly the final quarter of this year has seen further volatility, in particular that generated by concern about sovereign debt," Mr May said. "Nevertheless, this year's rebound has seen the fund's total return since inception rise to 5.49 percent per annum.

"This remains 0.51 percent less than the risk-free rate over the same period, but the fund's return was 2.8 percent below that mark at the end of the previous financial year."

The fund was originally nicknamed the Cullen Fund after former finance minister Michael Cullen set it up in late 2003, with the aim of partially funding future superannuation. It started with $2.4 billion and that had grown to $15.6b by the end of this June and then to $16.2b by the end of August, giving an annualised return of 5.85 percent.

The performance rise supported what its guardians had repeatedly stressed since it started in 2004 that a growth portfolio made short-term performance volatile, Mr May said.

"Clearly, we prefer short-term volatility to make the fund go up -- as it has for most of this year -- rather than down. But the crucial factor is how the fund performs over time."

After poor results during the global financial crisis, the refocus of NZSF's active investment strategy again added value, he said.

"As well as outperforming Treasury Bills, the fund outperformed the passively invested alternative benchmark by 0.83 percent in the past financial year."

At the end of June the fund's investments in New Zealand were worth $2.685 billion, around 17 percent of its total assets.

Its biggest New Zealand investment was $1.026b in timber, followed by $804m in equities.

It invested $210m in acquiring Shell NZ assets during the year in a joint partnership with Infratil.

The fund said it had a number of discussions regarding potential investments as part of its NZ Direct portfolio and had advanced two of them to further due diligence during the final quarter, but did not reveal what they were.

The fund also invested $US300m in natural catastrophe reinsurance products during the year. The bonds cover natural catastrophes such as major hurricanes, earthquakes and bushfires in places where such events present a low but genuine risk.

"Our investment is mostly in securities that cover US hurricanes and earthquakes, with some products covering European windstorms and Japanese earthquakes. We have not made similar investments in New Zealand because of organisations such as the Earthquake Commission."

The fund said natural catastrophes were not affected by the global financial crisis, but the crisis had enabled the fund to get an attractive premium for an income stream completely uncorrelated with financial markets.

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