NZ Super sovereign wealth fund sheds $NZ3.3 billion after bond and stock rout

Mr Whineray said the fund dodged the worst of the market’s pain by allocating to timber, global macro hedge funds and credit, while tilting its equity portfolio towards value stocks – a strategy that finally paid off after years of waiting.

“An allocation to the ‘value’ factor, which had historically weighed negatively on performance, began to reverse in late 2021, after global equity markets began to pull back after reaching all-time highs,” NZ Super said.

Timber, in particular its investment in Kaingaroa Timberlands, a pine forest on the North Island of New Zealand, was credited as contributing to performance.

Further volatility ahead

In an interview with The Australian Financial Review in October last year, the fund’s chief investment officer, Stephen Gilmore, said he was scaling up its private asset exposure as it put more emphasis on active management, and looked to reduce its weighting to US stocks.

The minus 7 percent return for the financial year is in sharp contrast to the spectacular 29 percent return over the year ending June 30 last year. The fund has clawed back losses already: since June 30 this year, its assets have increased by $NZ2 billion to $NZ57.3 billion as it flagged further volatility ahead.

“Stakeholders should expect to see further ups and downs going forward. As a long-term investor, the fund is well positioned for this kind of market,” Mr Whineray said.

The market volatility in the first half of the year has hurt some sovereign wealth funds more than others. NZ Super’s 7 percent fall compares to a more modest 1.2 percent loss posted by Australia’s sovereign wealth fund, the Future Fund.

Over five and ten years, NZ Super has returned 8.09 percent and 12.06 percent annually, compared to 7.5 percent and 9.7 percent for the Future Fund.

The world’s largest sovereign fund, Norway’s NBIM, posted a decline over the 12-month period of 10.43 percent. It coped with a 14.4 percent decline over the six months to June 30 alone.