Superannuation Fund Announces Asset Allocations
14 August 2003
New Zealand Superannuation Fund Announces Asset Allocations
The New Zealand Superannuation Fund today said it would spread its investments widely to deliver on its goal to maximise its returns for the future benefit of all New Zealanders.
Chairman of the Board of Guardians of New Zealand Superannuation David May said the Board had considered a detailed report from principal investment adviser Mercer Investment Consulting, with supporting advice from Russell Investment Group and the Fund’s own management team.
Mr May said the allocations chosen reflected the Fund’s desire to spread its investments widely in order to achieve the best return available over the long term. The asset allocations are as follows:
Strategic Asset Allocations
Asset class Invested in
$ billion Proportion of Fund
NEW ZEALAND $22.2b 22.0
Listed equities 7.6b 7.5
Other growth assets* 4.5b 4.5
Fixed interest 10.1b 10.0
INTERNATIONAL $78.7b 78.0
- Large/mid cap 44.9b 44.5
- Small cap 12.1b 12.0
- Emerging markets 3.0b 3.0
Other growth assets* 8.6b 8.5
Fixed interest 10.1b 10.0
* includes private equity, property, infrastructure, commodities and others
“We’ve chosen a spread of asset classes which offers the best opportunities for long-term growth without the need to take undue risk. Our mandate is to grow the money entrusted to us for the future benefit of all New Zealanders. The more the Fund grows – through the ever-increasing impact of compound interest on investment returns – the less the tax burden on future taxpayers,” said Mr May.
Around 22% of the Fund’s assets will be invested in New Zealand. By 2023, the Fund will have around $22 billion invested in New Zealand.
Mr May noted that the total value of the NZSX50 Index free float (shares available for trading) was around $36 billion. Detailed research by Mercer Investment Consulting indicated that the Fund’s size ($100.9 billion in 20 years) restricted its ability to allocate a high proportion of its assets to the local sharemarket and still achieve the best possible returns.
The allocation of 7.5 per cent of the Fund to listed New Zealand equities is based on the expected ability of the domestic sharemarket to grow to accommodate the active management of the Fund’s assets on an ongoing basis.
“Long term, this allocation to the New Zealand sharemarket could increase if the NZX were to experience even stronger growth,” said Mr May.
The Fund will also invest up to $4.5 billion dollars in other New Zealand growth assets over the next 20 years. The Fund’s scale and long term horizon means that it is well placed to take advantage of opportunities in markets such as property, private equity, infrastructure and commodities. The Fund will be actively researching opportunities to find appropriate high quality investments in these sectors in New Zealand
A relatively high proportion (67%) of the Fund’s investments will be allocated to equities, reflecting the Fund’s long-term investment horizon.
“The returns from equities over long periods of time have consistently been higher than returns from any other asset class,” said Mr May. “Further, history tells us that the longer the period of time, the greater the probability that equities will outperform other asset classes.”
A substantial portion of the Fund’s assets will be invested offshore. Mr May said the Fund had made this decision in order to diversify its portfolio and spread its risk.
The Fund will appoint experienced investment management firms for most of the asset classes over the next 10 months. These managers will invest the money within each asset class in specific companies, bonds, property and other assets. The performance of the managers will be closely monitored by the Fund.
Mr May said the Fund’s asset allocations would be reviewed annually to allow for changing investment conditions.
The Fund, established by the Government to help meet the burgeoning cost to the Crown of superannuation payments to retired New Zealanders, will begin investing by the end of September with cash of around $2.4 billion. The Fund has a long-term investment horizon and, by law, no withdrawals can be made before 2020.
The Fund operates independently of Government with its own Board and management, but remains accountable to Government for its performance. Mr May said the Fund would operate in as open a manner as commercial sensitivities around its investment strategies allowed, reporting regularly to the public on its operations and performance.
The Fund’s major performance target will be to exceed, before tax, the risk free rate of return (generally regarded as the interest rate payable on cash) by an average of 2.5% per year over the next 20 years.
“Achieving this goal would mean the investment income earned by the Fund would be $22 billion more in 2023 than if the money had been simply held on cash deposit,” said Mr May.
“Throughout, we need to keep in view the long term horizon of the Fund. While the Fund may better its target in some years, it may not reach the target in others. Our focus will remain on determining the best investment strategy to achieve our long term goals.”
Background information on the Fund will be available at www.nzsuperfund.co.nz