The New Zealand Superannuation Fund has reiterated its preference for long-term growth assets with private market investments in particular earmarked for a more significant weighting in its portfolio.
The recently-released Strategic Asset Allocation (SAA), which is updated every two years, continues the trend of the Fund to allocate an increasingly greater proportion of the NZ$14 billion plus fund towards high growth and alternative investments. According to the statement issued by the Guardians of New Zealand Superannuation, the Fund would now target a 20 per cent allocation to alternative assets (which includes timber, infrastructure and private equity) compared to the 6 per cent set aside for the sector in the 2005 review. However, the Fund has also instituted a new method of assessing its exposure to private markets through the use of public market ‘proxies’ and has set a flexible target allocation to the asset class of 10-30 per cent. “A key benefit arising from the SAA review is the introduction of a flexible mechanism for taking advantage of private market investment opportunities. The revised SAA enables private market exposures to vary over time, in a way that will maintain the risk profile of the Fund as a whole,” the latest SAA report says. “The immediate changes in asset class weights following the review have been modest…. The modified SAA uses public market asset classes to proxy for a greater or lesser exposure to private markets.” The newest SAA also included target allocations of: global large-cap equities 32 per cent; global small-cap equities 5.5 per cent: emerging market equities 3 per cent; NZ equities 7.5 per cent; fixed interest 17 per cent; and, property 10 per cent. The Fund has also set aside commodities as a separate asset class for the first time, allocating 5 per cent to the sector. While the Fund’s allocation to NZ and emerging markets equities has remain unchanged, as at March 2005 its SAA was: global large cap equities 48 per cent; global small cap equities 8.5 per cent; alternative assets 7 per cent; property 6 per cent; and, fixed interest 20 per cent. The NZ Super Fund has returned almost 14.3 per cent per annum since inception, compared to the risk-free rate of return of 6.57 per cent, however, its CEO, Adrian Orr, warned such levels of continued outperformance should not be expected. Orr said there was a 75 per cent chance of experiencing a three-year period of negative returns during the next 30 years while annual volatility in returns are expected to be about 10 per cent. “This caution has been borne out over recent months, with the end of the global golden investment weather,” he said. “While our short-term investment returns remain within our anticipated variability, they demonstrate why the Guardians continue to focus on diversification and its long-term objectives. The Strategic Asset Allocation review is a key guide to these activities.”
Future Fund chief investment officer Ben Samild said that FY24 has been a great year for alpha creation, thanks to strong returns in equities and, unusually, across multiple hedge fund strategies all at the same time. He reflected the past few years have been “a difficult time to be an asset owner and to generate positive returns for risk assets” but the Future Fund is tracking well of its long-term mandate.
Simon Hoyle and Darcy SongSeptember 4, 2024
