The NZ$20 billion New Zealand Superannuation Fund's program of making investments outside of its strategic asset allocation framework when markets diverge sharply from underlying fundamentals has added value since its February 2009 launch, becoming a fixture of the Auckland-based system's investment strategy, executives say.
In its annual report released last month for the fiscal year ended June 30, David May, New Zealand Superannuation's outgoing chairman, cited the fund's “strategic tilting” as “the major contributor to the value we've added” during the latest year. The “new way” has produced “promising results,” he said.
Market veterans say New Zealand Superannuation's efforts are part of a broader trend that has found sovereign wealth funds, spurred by the heightened capital markets volatility of recent years, looking for ways to play offense when they sense stock and bond prices are getting out of whack.
Neil Williams, chief investment adviser and head of strategic tilting with the fund, confirmed in a telephone interview that a reduction in the fund's hedge on foreign currency assets back to the New Zealand dollar was a key factor in the strategic tilt program's NZ$295 million (US$241.2 million) boost to the portfolio for the latest fiscal year — the bulk of the value added above its passive policy benchmark.
But with the program designed to take advantage of the fund's ability to provide long-term capital at moments when risk aversion is stifling the broader market's risk appetite, New Zealand Superannuation's board is more focused on medium- and long-term results than on returns for any given year, he noted.
Other elements of New Zealand's strategic tilt program last year left the fund's allocation to global equities significantly above its target of 70% of overall assets, and fixed income significantly below its 20% target. Citing the market sensitivity of its strategic tilt positions, fund executives declined to provide specific allocation figures.
Providers of long-term capital, such as sovereign wealth funds, are simply adjusting to a changing opportunity set in markets characterized by volatility and dislocations, noted Peter N. Horn, Melbourne-based head of J.P. Morgan Asset Management's Australia business and a member of the firm's global sovereign client group.