Media statement
1430 hrs, 4 October 2011

Government Superannuation Fund records sound growth

The Government Superannuation Fund returned a surplus after-tax of $335M for the year ended 30 June 2011, an 11.6% return. This was up from $285M in 2010.

“The Fund continued to recover for the second year running since the global financial crisis, with global equity and commodity markets up strongly,” said Government Superannuation Fund Authority Board Chairman, Keith Taylor.

“New Zealand equities performed particularly well, with a 19.8% return.”

“Returns from the Fund were ahead of target in the last two years, but remained behind the Authority’s ten year rolling measure owing to the global financial crisis and the earlier decline in global equity market returns in 2000-2003,” he said.

“However, the Authority’s focus is on the long term investment horizon as the Fund is expected to continue paying entitlements for another 60 years.”

Mr Taylor said that in 2011 the Authority defined and monitored its investment strategy using a ‘Reference Portfolio’ for the first time.

“This is an asset allocation that could theoretically meet the Authority’s investment objectives, by investing passively at low cost.”

“The portfolio is used as a benchmark against which diversification and active management of the Fund are measured to see whether they add value or reduce risk, net of costs.”

“In 2011, active management added value in most asset classes but, because of currency effects, the final result for the year was 2.5% below the performance of the Reference Portfolio,” he said.

“The Fund’s total exposure to foreign currencies was increased above benchmark for most of the year on account of the New Zealand dollar’s perceived over-valuation and link to international equity markets. As a result, the Fund did not gain as much as it could have if foreign currency exposures had been maintained at benchmark.

Mr Taylor cautioned that the outlook was more uncertain than usual for 2012.

“Since the start of the new financial year, there have been declines in global equity prices and the value of the New Zealand dollar.”

“These falls are a reaction to weakening growth in the US and Europe, coupled with a loss of confidence in policymakers’ capacity to fix the debt crisis overhanging the developed economies.”

“We believe the investment risks are higher than usual and it’s unlikely they will reduce significantly until the debt problem is addressed credibly,” he said.

Mr Taylor said that the Authority had continued to diversify the Fund’s sources of return and risk during the year.

“New investments were made in insurance-linked assets and New Zealand commercial property, in addition to existing investments in global property, commodities and absolute return strategies established over the last few years.”

Mr Taylor said the Authority was pleased with the outcome of its second 5-yearly statutory review undertaken for the Government.

“The independent reviewer, JANA Investment Advisers, concluded that the Authority is well structured and managed, with appropriate systems in place or under development for organisation and governance, schemes administration, and information and financial management,” he said.

“They also said the Fund’s objectives and strategy were based on sound principles, that investment performance had been satisfactory, and the Authority’s approach had reduced the risk profile for the Fund’s returns.”

“JANA made a number of recommendations and suggested enhancements. These have been largely accepted by the Board and action plans have been put in place where appropriate.”

Mr Taylor also said that during the year the Authority had made good progress towards the development of a new system for GSF Schemes administration.

“We expect work on the construction phase to be completed by mid 2012.”

ENDS

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