NZ government pension fund ups its risk budget

New Zealand’s Government Superannuation Fund (GSF), the now-closed defined benefit fund for the country’s public servants, has taken on more risk with its new strategic asset allocation taking effect this week.

In its annual report released last week the GSF says it has increased its allocation to international equities from 42.5 per cent to 52 per cent. That increase comes at the expense of New Zealand equities (down to 2 per cent from 13 per cent) and a reduction in the allocation to international fixed interest from 27 per cent to 20.5 per cent. The GSF has also made a 3 per cent allocation to collateralised commodity futures. Until 2001 the GSF, which currently has unfunded liabilities of some NZ$8 billion could invest only in government stock. The fund has also changed its risk parameters from having no more than a one in 10 chance of losing $100 million after tax in any one year to having the same chance of losing 6 per cent of the total fund in any one year. “The new risk parameter also recognises the growth in the fund from NZ$3.2 billion in 2003… to $4 billion in 2007. As at 30 June 2007, 6 per cent of the fund was $240 million,” the annual report says. The GSF is also transitioning from a passive equities strategy to an active approach along with the recent changes to investment tax rules, which took effect on October 1. In its Statement of Intent released earlier this year the GSF revealed its investment management expenses would almost double in the 2007/8 year because of the switch to an active equities strategy. The fund has projected investment fees of NZ$19.4 million in the coming year compared to an actual expense of NZ$9.1 million in the 2006/7 period. The GSF currently has mandates with 11 external managers some of whom are expected to change once the new policy is implemented. The fund’s current equity managers are AllianceBernstein, AMP Capital Investors and Assure Funds Management. The annual report also revealed the GSF returned 14.9 per cent in the year to June 2007 compared to 13.7 per cent in the previous 12-month period. However, the fund’s surplus after tax stood at NZ$462.4 million in 2006 versus NZ$354.8 million in the latest reporting period representing a return on average assets of 13.5 per cent and 9.5 per cent respectively. The GSF report says its returns compared well with the 6.4 per cent median fund return as measured by a Mercer New Zealand survey of 65 superannuation funds. “Returns from all asset classes were positive for the year but performance against benchmarks was mixed,” the report says. Of the five asset classes in the GSF portfolio only two (property and NZ fixed interest) outperformed their relevant indexes.