The New Zealand Superannuation Fund has maintained its position as the world’s best performing sovereign wealth fund over the past 20 years, according to rankings compiled by international sovereign wealth fund experts GlobalSWF.
Average annual returns of 9.93 percent (after costs and before NZ tax) placed the Super Fund well ahead of the average returns generated by both Sovereign Wealth Funds (6.2 percent) and Public Pension Funds (6.8 percent) and second overall to Swedish public pension fund AP7.
The Super Fund also outperformed all other sovereign wealth funds over the past five years and generated the second-highest returns during the past decade.
But Fund manager the Guardians of New Zealand Superannuation is striking a cautionary note.
Guardians Co-Chief Investment Officer Brad Dunstan says while the Fund’s commercial mandate and long-term investment horizon are genuine advantages, its success over the past two decades has been underpinned by strong market conditions which are unlikely to be repeated.
“The success of our active management strategies has enabled us to consistently outperform our passive benchmark (the Reference Portfolio). However, we are still an equity-dominant fund and as such a large proportion of our returns over the past 20 years are a result of the continuing outperformance of world equity markets – in particular those in the United States,” says Dunstan.
“One of our key investment beliefs is that prices tend to revert to fair value over time. Of late, we have seen prices across a range of asset classes surge: at some point, those markets will rebalance,” says Dunstan.
Dunstan says the Guardians believes global equities in particular are currently overvalued.
“Other things being equal, high prices for assets means lower future returns – especially over a longer term,” says Dunstan.
“Higher inflation is also likely to negatively affect equity returns in the near future at least.”
Dunstan says carefully managing risk and liquidity were more important than ever in the current environment, but the Guardians would continue to look for opportunities to add value to the portfolio.
“Overall, we remain confident the Fund will continue to generate strong returns in relative terms, but it is hard to see the high absolute numbers of the past few years continuing.”