Investment News – Guardians of New Zealand Superannuation Annual Report 2022

From an investment perspective, the financial year has been a volatile one. As at 30 June 2022, the NZ Super Fund stood at $55.7 billion, down from approximately $59 billion the previous year. Despite the headline loss, our active management saw the Fund significantly out-perform its passive Reference Portfolio benchmark by 7.25 percent, generating a record $4.5 billion in value add and considerably reducing the impact of the broad market downturn (All performance figures are in NZ dollars, after costs and before NZ tax).

It might sound counter-intuitive to say the Fund had a strong year, given the drop in overall net asset value. However, our active investment strategies, which are a reflection of the excellent work and skill of the team over many years, have performed extremely well.

Throughout this challenging period, we have retained our long-term focus, introducing a new strategic framework which is driven by a refreshed Purpose and Vision.

Our Purpose: Sustainable investment delivering strong returns for all New Zealanders

Our Vision: An inclusive team creating a better future through investment excellence

Long-term performance

In this Annual Report, we report on the long-term performance of the NZ Super Fund against our key benchmarks (pages 40 – 45) and the drivers behind our successful active investment strategies and record value-add performance.

Since the Fund starting investing in 2003, it has returned 9.65% per annum, equating to $34.6 billion more than the cost to the Government of contributing to the Fund, as measured by the return on Treasury Bills over the same period. The value added by active investment since inception, compared to our passive Reference Portfolio benchmark, represents $13.3 billion.

The external economic environment continues to present challenges to investors. Heightened inflation, and the associated response by central banks to push up interest rates to suppress demand, places considerable pressure on investment returns for both bonds and equities.

As a long-term investor, however, we are well-placed to ride out the market volatility we have seen this year.

In our new Investment Opportunities Report (pages 48 – 53), we provide details on our approach to active investment, how we use active risk and allocate risk to investment opportunities over time. We also explain our Portfolio Completion process, which seeks to add value to our portfolio through efficient implementation.

Shift to Sustainable Finance

For many years the Guardians has developed a strong track-record as a responsible investor. This approach supported us in managing environmental, social and governance risks (ESG), and delivering world class financial returns for New Zealanders.

Our long-standing commitment to responsible investment has served us well. However, following a year-long strategy review, we have set a new approach, in line with the global industry shift to sustainable finance, under which investors consider not just the ESG risks their portfolio is facing, but the impact of their investment portfolios on society and the environment.

Adopting a sustainable investment approach will help ensure we remain at the forefront of industry best practice and meet stakeholders’ expectations going forward.  In our Sustainable Finance Report (pages 62 – 75) we discuss the progress we have made in making this shift.

To be clear, our focus on maximising risk-adjusted returns remains. This is about the importance of achieving those financial returns in a sustainable way.

One of our key sustainable investment priorities during the year was to improve the ESG profile of the Fund’s passive global equities portfolio, a workstream which culminated in the adoption of new Paris-aligned indices for our passive global equity portfolio. Now fully implemented, the Fund retains a prudent level of diversification across countries and sectors while holding shares in significantly fewer companies. This will result in a passive global equity portfolio which is simpler to implement, and with greater alignment with climate-related goals and improved ESG metrics across the board.

Further information on these changes along with our efforts to scale up the Fund’s impact investments is available on pages 63 – 64.

We are holding a virtual industry and stakeholder briefing on November 8, where Manager, External Investments and Partnerships, Rishab Sethi, and Head of Portfolio Completion, Brad Dunstan will explain the shift to the Paris Aligned-indices, and answer questions.

RSVP to our stakeholder session on changes to our passive global equities portfolio

Other report highlights include:

• The Guardians’ new strategic framework, which shapes how our Purpose and Vision will be delivered in accordance with our revised risk appetite, and reinforces what we must focus on to succeed (page 20 – 21)
• Q&A from our newly appointed Head of Diversity, Equity and Inclusion, covering how we view DE&I at the Guardians and our future direction (page 36)
• A breakdown of the ways we are invested in our home market of New Zealand (pages 56 – 58)
• Progress on our Investment Data Strategy and our newly established Data Analytics Team (page 61)
• Updated Climate Change Report in line with TCFD guidelines. This report includes a 30 June 2022 carbon footprint for the NZ Super Fund, including common metrics enabling comparisons across New Zealand’s Crown Financial Institutions
• Progress report on the Elevate NZ Venture Capital Fund, including new investment commitments over the financial year (pages 76 – 79).

Noho ora mai rā,
Matt Whineray
Chief Executive Officer
Guardians of New Zealand Superannuation