NZ Super reports 19.4% FY gain, predicts more 'normal' returns going forward

New Zealand Superannuation Fund, in an annual report released Wednesday, reported a 19.36% return for the fiscal year ended June 30, even as fund executives warned future gains are likely to be less spectacular.

On an after-tax basis, the portfolio ended the year with NZ$25.82 billion (US$20.2 billion) in assets, up 14.6% from the year before.

The superannuation fund's latest returns lifted annualized gains for the five years ended June 30 to just more than 17%.

Returns for the coming years should be more “normal,” the annual report said.

“The easy value-add runs have been made post the global financial crisis,” wrote Adrian Orr, the Auckland-based fund's CEO, in the report.

Prices of most major asset classes have reached levels where there's “no point chasing additional risk if we're not going to be adequately rewarded,” Mr. Orr added.

Still, the report said that relatively bad times for markets can be good times for an investor such as New Zealand Superannuation, which is tasked with accumulating retirement savings ahead of an anticipated graying of the country's population.

“It's important to appreciate that periods of market weakness … are the very times where long-term investors such as ourselves can find the best opportunities,” wrote Gavin Walker, chair of the fund's board of trustees, in the report.

For the first time in five years, the superannuation fund's investment activities — including allocations to active managers and a “strategic tilting” program aimed at profiting from short- to medium-term deviations from fair value — failed to add value. The portfolio's 19.36% return trailed that of the fund's reference portfolio by 11 basis points.

The annual report attributed that underperformance to “impact of the rising New Zealand dollar on our currency tilting strategy,” which remains positioned to benefit should the local currency return to a “more normal level.”

The annual report also noted that during the latest fiscal year, Vermillion Asset Management and Blenheim Capital Management — two hedge fund firms focused on commodities — were terminated, reflecting the investment team's “changing view of the investment opportunity that each manager was accessing.”

No further details were provided. As of June 30, 2013, Vermillion was managing NZ$294 million on behalf of NZ Super and Blenheim was managing NZ$177 million.

During the latest fiscal year, Gladius Capital Management, a hedge fund focused on volatility trading, was likewise terminated, again reflecting a change in NZ Super's judgment about the investment opportunity. As of June 30, 2013, Gladius was managing NZ$224 million.

Meanwhile, NZ Super unloaded its investments managed by two private equities firms — Apax Partners Europe Managers and Astorg Partners — in a secondary sale, the annual report said. Those managers had been overseeing NZ$46 million and NZ$7 million, respectively, for the superannuation fund.