New Zealand’s US$42 billion NZ Super has notched up its best ever return of 29.6%, beating its benchmark by 1.7% and surpassing the performance of Australia’s public pension fund AustralianSuper (20.4% on the balanced fund) and its sovereign wealth fund the Future Fund (22.2%). Yet, in global terms, all three have demonstrated a relatively impressive performance.
NZ Super has a far higher allocation to public equities (total of 74% in public markets, including global and domestic stocks) than the two Australian funds, enabling it to benefit from the leap in stock values over the financial year, ending June 30. Yet, it has also performed consistently well over the past decade. In terms of 10-year averages, NZ Super had an annual return of 13.4%, compared to 10.1% for the Future Fund and 9.7% for AustralianSuper. Last year also saw the Kiwis outstrip the Aussies, even as its return slipped into low single figures despite the slump in stock markets.
The difference in long-term returns, however, is smaller than the contrast in strategic asset allocation. Across all asset classes, the three funds have very different strategic allocations with AustralianSuper having the highest weight of the three in fixed income and infrastructure, while Future Fund has the largest allocations to hedge funds and private equity, and NZ Super is heavily oriented to public markets.
A common theme in the success across the three funds is a clear mandate, good governance and ensuring strategy evolves with current and future trends. It is these factors that the funds believe influenced their success over the years, rather than a focus on a specific asset class.
Speaking to Global SWF, NZ Super’s CIO Stephen Gilmore explained the fund’s out-performance, “Our five major success factors include (i) a genuine long-horizon as we do not expect to make any large contributions back to the Government until the 2050s; (ii) a fairly healthy risk appetite with a benchmark portfolio made up of 80 percent equities and 20 percent fixed income; (iii) a very strong governance structure; (iv) a portfolio that is fully currency-hedged; and (v) a very successful strategic tilting / dynamic asset allocation approach.
“Besides the five success factors, it is key that we stick to the program. A good example was COVID, where we did not reduce risk, but instead increased it by leaning in to a falling and cheapening equity market. In 2018, we publicized what would happen if we went through a repeat of a shock like the GFC. So when we had the shock in 2020 our stakeholders were ready.”
Although NZ Super is an out-performer, all Antipodean funds have fared well in global terms. Speaking to Global SWF, the US$185 billion Future Fund’s Head of Corporate Affairs Will Hetherton explained the basis for the fund’s successful growth strategy: “We were blessed with starting with excellent clarity of purpose and statutory framework: very clear return and risk parameters that have allowed us to establish the independence of the organization. Building up a clear investment governance and a strong culture has also been crucial and brought us together as a team. Additionally, we continue to think about how the world is changing and how we need to evolve accordingly: we must not rest on our past performance but look at how things are changing and how we need to evolve towards that.”
In relation to the fund’s high level of allocation to alternatives, he added, “Every fund is different and has to run its own race – for example, we like Australian infrastructure given the way it links to our CPI-based mandate, and we believe venture capital is an important tool to access innovation and companies of the future. High returns are getting harder to achieve and alternatives provide us with the opportunities we need to create value. We are also trying to be more granular and to focus on specific themes within each asset class.”
The return on AustralianSuper’s Balanced Option in FY2020/21 was also its best performance since it was started in 2006. The US$169 billion fund manager's CIO Mark Delaney said, “We’ve seen yet again that markets recover after downturns, which reinforces the fact that maintaining long-term discipline increases the potential for long-term investment success. AustralianSuper is a long-term investor and we have a pro-growth stance in allocating assets in the Balanced option. That means that we have a higher allocation to growth assets such as listed shares and private equity and we are continuing to pursue opportunities in infrastructure, private equity, property and credit assets which we expect will deliver long-term growth for members.”