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NZ Super Fund returns nearly 20% in 2012

Investment returns from the New Zealand Superannuation Fund, the country's main savings vehicle to fund public pension entitlements, came in at 19.17 percent in the 12 months to December 31, the fund's guardians report.

The monthly update shows the fund finished the year at a record value of $20.92 billion, up from $17.73 billion at the end of 2011, of which $3.49 billion is invested in a range of New Zealand assets, including publicly listed shares, forests, farmland, commercial property and private companies.

Since its inception a decade ago, the fund has achieved a 7.92 percent return on its investments and contends that its active portfolio management policy has added $1.3 billion of the increased value, compared to returns if its funds were passively managed.

Unlike most other managed funds, the NZ Super Fund does not exclude tax payments from its calculation of returns, since tax paid is also regarded as a gain for the New Zealand government, which funds public pensions primarily from tax revenues and borrowing.

The long-term performance so far means the fund has exceeded its own performance target of beating the interest rate return on 90-day Treasury Bills by at least 2.5 percent, with the current return standing at 2.84 percent above the bill rate.

The returns fluctuate, in part because the fund is actively managed. Over the last three years, it has achieved a pre-tax rate of return of 11.54 percent, but in the five years covering the period of the global financial crisis, that return falls to just 4.02 percent.

Some 5 percent of its total assets are held in New Zealand shares, compared with global shares making up 61 percent of its portfolio. Some 36 percent of total funds are invested in North America, 23 percent in New Zealand, 19 percent in Europe, 17 percent in Australia and 13 percent in Asia, including Japan.

A report for the Treasury's Crown Ownership Monitoring Unit last week said that government-owned savings entities, including the NZ Super Fund and Accident Compensation Corporation funds under management, were at close to saturation point on active ownership of New Zealand equities.

If they were to increase their holdings, less active management policies could be required.

Returns in the month of December were 2.33 percent.


Comments and questions

Perhaps it should be available as a Kiwisaver provider as well?

That adds different constraints in terms of reporting and risk management to the fund. Constraints it may not want.

Maybe someone could come up with a "Super Fund Tracker" that mirrored their holdings.

If we had a compulsory super scheme like Australia, half our problems would be resolved in this area.

Not when NZ's compulsory scheme would be Kiwisaver, which involves plundering the retained earnings, twice, of every SME that employs, so the extorted funds can be used by a few elite firms on the NZX. Retained earnings are the main and most important source of funds for all SMEs. It's morally repugnant, and economically retrograde, to consider a compulsory scheme (even the current scheme is so). My blog making the point is here:

There are two things that readily come to mind that should be compulsory to all NZers. One is third party insurance (we desperately need to mirror the British version of it) and second is we need a compulsory superanuation scheme. Like it or lump it, we have to have it.

The compulsory third party insurance in Britain is for personal cover. We have ACC that eliminates the need. There is simply no point in making anyone else insure anything. You will still always need comprehensive cover for yourself. We used to have compulsory third party insurance in NZ, taken out when registering your vehicle. It went with ACC, and good riddance. It meant everyone paid more.

Third party insurance is to cover the other person/vehicle, eg my daughter had an accident last year, not her fault, while at university. While she had third party fire and theft on her vehicle the person who ran into her had no insurance. Damage was $1579, which I paid, and am now in the courts chasing the other person. Third party insurance would alleviate this. Many people drive around in NZ with no insurance.
As to Kiwisaver being compulsory, it’s the only way forward. I do like the idea of a KS provider mirroring the NZ Super Fund and offering it.

If your daughter had full insurance, her company would do the repair and recover what they can. That will cover her for all eventualities at little cost. Compulsory third party won't help if the other vehicle is stolen, the driver is unlicensed, the vehicle is not insured because it's unregistered, it's in dangerous or unroadworthy condition with a fault that contributed to the accident, the driver is intoxicated, the vehicle is simply vandalised while parked, badly damaged by a cyclist, etc. Many countries with compulsory third party insurance cover only personal injury - not the vehicle. ACC does that for us.

We also desperately need a compulsory national insurance fund to cover Auckland's deficient wood workers, cement playmates and "expert's" who masquerade as builders in this benighted city. Auckland's 150K leakers vs less than a handful in Invercargill tells you that's the only way to fix their mess.

What was the opportunity cost of stopping contributions to the fund? Could the returns have been better with the extra government funding?

Very, very unlikely that the rate of return would have changed.. Would you borrow against your home to put money into international equities (primarily large cap US)?

Are there any investments that are indexed to the Super Fund?

Not sure this could be done, even if all investments were listed as some a private investments (ie, the central forests).

They would have done better if they had held it all in gold bullion ... and could have sacked all the asset "managers" and financial advisor consultants.

How do you figure that? On January 9, 2012, gold was $US1617.95. On December 28, 2012, it was $US1663.40, about a 2.8% return on your money. Oops, glad I did not invest in gold.

Include forex and I make it a loss. However, the NZX was up 25% last year. Why not put all the Super Fund into that (apart from the fact it would push up prices and end up owning a third of the market).

Cunning, you chose the one year in the last 13 gold held steady (better than most gambles going around out there). If you were honest and compared since the Cullen Fund's inception .... well, I'll let you do the math.

"Since its inception a decade ago, the fund has achieved a 7.92 percent return on its investments" ...

... note you have to remove taxes paid by fund's investments to get the TRUE MARKET return since they don't count them, by using some jiggery-pokery only a government fund can get away with.

Gold has been up 12% yoy for last decade ... just so you don't have to strain your brain to look that up.

Look forward to your honest comparison.

Great to know they made a decent return in 2012 (with the NZX hitting highs, one would be worried if they didn't). Just would be nice to know also how much it cost to "manage" the fund. I note that the costs of some of the other investment funds (ie, ACC) were horrendous, and it probably would have been more beneficial if they had just put the money in term deposit in a bank!

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