New Zealand sovereign wealth fund NZ Super reported a record annual investment return of 29.63% for the financial year ended June 30, 2021, which Chief Executive Officer Matt Whineray attributes to a portfolio that was “well positioned” to capture gains from rising asset values.
But he also warns of a potentially “challenging” future investment environment when central banks start to raise interest rates to curb inflationary pressures.
NZ Super’s return, which was more than 17 times higher than the 1.73% in the prior financial year, increased its assets under management by over a third to NZ$59.8 billion (US$41.46 billion) from NZ$44.8 billion in June 2020, the fund says in a statement on September 14. The annualised investment return since the fund was established in 2003 was 10.67% versus 7.14% for the 90-day Treasury Bill.
Whineray says the past year “demonstrates the importance of sticking to our long-term investment strategies, which are designed to play out through market cycles”.
“The fund has a portfolio mix that was well positioned to capture strong returns from rising asset values over the year,” he says in the statement.
According to Whineray, NZ Super’s active investment strategies have added NZ$10.6 billion of value above what would have been achieved with a simple, market-indexed and passive portfolio over the years.
He sounded a cautionary note about the outlook, noting that markets are performing strongly and economies are rebounding from the coronavirus crisis on the back of accommodative fiscal and monetary policies so “we’re possibly looking at a period of increasing inflation and rising interest rates”.
“That combination should weigh on company returns and creates a challenging investment environment. We do not expect the outperformance of recent times to continue forever,” he says.