Superannuation Fund produces solid returns
Government Superannuation Fund produces solid returns in 2009/10
The Government Superannuation Fund has returned an after-tax surplus of $285 million for the year to 30 June 2010.
This represents a 10.4% return on average net assets. The surplus before-tax was $383 million, or 14.3% on average net assets.
“The overall result for the past year is a welcome recovery, following two years of negative returns during the global financial crisis,” said Mr McGuinness.
“It has helped us claw back some of the impact of the crisis. With a 10.4% return, we ended the year ahead of our Investment Performance Measure (IPM) of 8.2%. The annualised after-tax return since 2001 is 2.3%. While this is 4.7% pa down against the annualised IPM, we are in a better position than we a year ago, when the shortfall was 5.6%.”
“As well as the market rally experienced during most of the year, active management across most asset classes positively contributed to the Fund’s surplus,” said Government Superannuation Fund Authority Board Chairman, Tim McGuinness.
“Overall, active management contributed 1.3% of the before-tax return, net of investment management fees.”
In its annual report, the Authority says that significant returns above benchmarks were generated by its equities and fixed interest managers, and by its commodities manager. Multi-asset class strategies also added value. Only the return from real estate was below benchmark.
In terms of the Fund’s performance for the first two months of the current financial year, Mr McGuinness said the year has started well but volatility was expected to continue for some time.
Mr McGuinness said that in response to the ongoing volatility in global markets, the Authority had increased its Risk Parameter to have no more than a 1 in 10 chance of an annual loss for the Fund greater than 9% (previously 6%).
“At the same time, the performance measure has also been changed by increasing the expected margin of return over Government Stock to ‘at least’ 2.5%. This reflects a corresponding increase in the expected return, making up for the higher level of risk,” he explained.
During the year the Authority changed the way it defines and monitors its investment strategy.
From 1 July a ‘Reference Portfolio’ and a ‘Target Portfolio’ replaced the Authority’s Strategic Asset Allocation.
“The Reference Portfolio is an asset allocation that could theoretically meet the Authority’s investment objectives, by investing passively at low cost. However we believe that improved portfolio efficiency through diversification combined with active management of the Fund can achieve better outcomes as it has done in this year. These decisions will therefore be reflected in a separate ‘Target Portfolio’,” Mr McGuiness said.
“The Reference Portfolio is a way for us to benchmark all the diversification and active investment decisions. In that way we can assess whether they have added value or reduced risk, net of costs.”
In 2010 the Authority also commenced work on the development of a new, more sustainable GSF Schemes’ administration system.
The Authority has worked with Datacom Systems (Wellington) to complete the first phase which will further scope the new system and give greater certainty as to the total cost of the project. The first phase has proceeded on time and to budget, and is already achieving its objectives. Once this phase is completed at the end of 2010, Datacom will move on to the Construction and Transition phases.