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Guardians Release Annual Report

Guardians Release Annual Report

Annual Report Release Financial Year Ended 30 June 2007

Auckland (4 October 2007) - The Guardians of New Zealand Superannuation (Guardians) today released their Annual Report. In the Report they announced the investment returns of the New Zealand Superannuation Fund (Fund) for the year ended 30 June 2007.

The Fund's net return on investments for the financial year was 14.58% before New Zealand tax. During the year, the Fund grew from $10.1 billion to $13.1 billion. This growth was a combination of contributions from the Crown of around $2 billion and the investment returns.

The Guardians' Chief Executive Officer, Mr Adrian Orr, said: "The Guardians actively invest in growth-related assets so as to best ensure the Fund is able to act as a buffer to the future rising cost of New Zealand Superannuation. Since the Guardians began investing in September 2003, the Fund's annualised return has been 14.8% per annum. This result is roughly two times the risk-free rate of return, that is, the interest rate the Crown pays on its short-term debt issuance.

We are acutely aware that this extended period of positive investment return has been unusual and will not be sustained every year. The ongoing challenge for the Guardians is to continue to diversify the investments through both positive and negative investment climates, so as to meet our objective.

Over the course of the year the Guardians have invested in new publicly listed mandates and have made private market investments. The Guardians now have 39 investment mandates covering a very wide range of asset classes and geographies. Almost all asset classes performed strongly over the course of the year, albeit with a wide variation. The risk-reducing benefits of this return variation will become more evident over time as the investment climate alters.

The Guardians capabilities also expanded over the course of the year. This included a renewed focus on developing an institutional structure to manage the future growth in the Fund, and the appointment of a new custodian bringing an improved ability to manage the growing complexity of the Fund. The Guardians' responsible investment framework has also been revised to reflect the most recent developments in this area, which remains a core part of the Guardians' investment practices," concluded Mr Orr.
The Fund's asset allocation and performance for the financial year ended 30 June 2007 and since inception (September 2003) is as follows:
Sector Fund value
as at 30/06/07
& % Fund* FY2006/07
Annual Actual Return FY2006/07
Annual Benchmark Return Annualised Return
since inception
(Sep 03 - June 07) Benchmark Return
since inception
(Sep 03 - June 07)
New Zealand Equities $957.6
7.30% 22.65% 20.35% 23.60% 20.24%
Global Large Cap Equities $5,552.7
42.30% 17.03% 17.09% 18.85% 17.52%
Global Small Cap Equities $910.4
6.90% 18.95% 15.55% 23.83% 21.86%
Emerging Markets Equities $453.2
3.40% 41.85% 36.72% 37.76% 38.94%
Property $908.4
6.90% 16.77% - 20.55% -
Private Markets** $1,412.9
10.80% 25.15% - 21.57% -
Commodities $675.2
5.10% (11.43%) (12.15%) (7.97%) (9.28%)
Fixed Interest and Cash $2,279.1
17.30% 2.27% 4.85% 5.30% 6.10%
Total Fund $13,149.5
100.00% 14.58% 14.81% 14.81% 13.98%
*Net assets after adjustment for deferred tax liabilities and tax receivables/payables. The Fund's annual return net of New Zealand tax for the year ended 30 June 2007 was 9.9% (calculated on a simple arithmetic basis). The Fund is indifferent to paying New Zealand tax due to the Crown being the beneficiary. The Guardians' investment strategy reflects this core Crown ownership status.
**Private Markets includes timber, infrastructure, private equities, and other non-listed investments. Their investment performance is monitored against the risk-free rate of return plus a margin for the investment risks incurred.
The policy for managing foreign currency exposure is to hedge 72.5% of the Fund's exposure in the global growth assets sector (equity, and property assets), and 100% of infrastructure, global fixed interest, and timber assets. Overall, the Fund holds 83% of its assets in NZ Dollars and 17% in foreign currency.

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