Source: NZ Super Fund
From Jo Townsend:
I’ve now clocked up my first three months as Guardians CEO, and have thoroughly enjoyed getting to know the team, as well as meeting many of our business partners and external stakeholders.
While the NZ Super Fund continues to perform well – it has returned 16.85% over the 12 months to 31 May – we face a number of challenges.
Top of mind is how we will scale and optimise the organisation given the projected doubling in Fund size over the next 10-12 years. We want to do this without losing the culture and organisational character that has made us both successful and a place where very good people want to be.
I’m conscious that the world is full of uncertainties and that the investment landscape is ever-changing. As the world gets more and more complicated, an ability to keep things simple, and remain nimble, will stand us in good stead.
I would like to thank all our stakeholders for the contribution you have made to the success of the Guardians over its first two decades. If I haven’t met you yet, I look forward to doing so in the months ahead.
Performance
Our financial year result will be released on 9 September, but ahead of that it’s worth reflecting on the Fund’s long-term performance.
It’s a pleasure to be able to report a rolling 20-year return of 10% p.a. (after costs, before NZ tax). The Fund is well ahead of its benchmarks: active investment has added $16.9 billion in value and, importantly, the Fund has generated $48.5 billion more than the return on Treasury Bills. This means the Government’s accounts are significantly better off as a result of investing in the Fund instead of repaying debt.
We have made some changes to the investment performance section of our website to include the new 20 year rolling figures. Monthly returns are now provided in a downloadable spreadsheet.
The Global Economy
The global economy has continued to slow, albeit by less than expected. With the US in particular outperforming expectations, regional differences are beginning to become apparent. Overall, the feared “hard landing” seems to have been avoided – the IMF, for instance, is forecasting global growth of 3.2% through 2024 and 2025.
On the inflation front, we are seeing a decline in global headline rates towards 2-3%. Alongside this, however, core inflationary pressures persist, particularly those resulting from tight labour markets. As a result, we are likely to see global interest rates stay higher for longer.
In the financial markets, sovereign bond yields are up, as are global equities.
The economic risks to keep an eye on are currently geopolitical in nature – with key elections and potential changes in governments on the horizon, and on-going conflicts. These factors are likely to lead to a choppy investment environment for the remainder of the calendar year.
GSR Scorecard – 100%
In July, the Fund achieved a 100% score in GlobalSWF’s GSR (Governance, Sustainability, and Resilience) scoreboard – the third year in a row we’ve nailed the perfect score. We were one of only five out of 200 institutions to achieve this in 2024.
The scoreboard is an annual comprehensive analysis of the practices of the world’s major sovereign wealth and public pension funds. The analysis is based on 25 criteria, including transparency and accountability, governance structure and processes, ethical standards and policies, and alignment with sustainable development goals.
Our Head of Sustainable Investment, Anne-Maree O’Connor, was interviewed for a feature in Global SWF’s newsletter.
Euroclear holding increased
In June, we acquired an additional 3.7% stake in Euroclear, having taken an initial 4.99% holding in June 2023. This follow-up investment makes us the company’s fourth largest individual shareholder, and Euroclear one of the largest single investments in the NZ Super Fund.
Headquartered in Brussels, Euroclear is a trusted provider of post-trade services. Euroclear provides settlement and custody of domestic securities for bonds, equities and derivatives, and investment funds, with approximately €37 trillion of assets under custody and over €1 quadrillion worth of annual securities transactions.
Euroclear is a useful diversifier in the portfolio and provides a rare opportunity to access large scale private markets exposure to global financial markets infrastructure.
Five-Yearly Review
Under our establishment Act, the Guardians’ performance must be reviewed at least every five years. 2024 is review year. In 2019, reviewers Willis Tower Watson (WTW) found the Guardians was achieving best practice in its activities and more capable of achieving high performance than the vast majority of its peers.
The 2024 review, again by WTW, involved over 50 meetings, 200 engagements with Guardians’ Board members and staff, and the review of more than 100 documents. The review has been completed and is likely to be released by the Minister of Finance in the next month or two.
Section 59 – Controlling Interest
Last month, the New Zealand Superannuation and Retirement Income (Controlling Interest) Bill was passed by Parliament. The Bill repealed section 59 of our Act, thereby allowing the Fund to take a controlling interest in another entity – which had previously been prohibited. This is a change we have been advocating for over a number of years.
This change will not fundamentally change the way we invest – it will, however, contribute to improved investment management, open up a larger investment opportunity set, and increase our ability to drive positive environmental, social and governance outcomes. Alongside that, it removes a constraint on our ability to respond to domestic investment opportunities.
Read more on the repeal of section 59 and what it means for the Fund in this recent NZ Herald article, written by Head of Direct Investments Will Goodwin.
Acting CIO and CRO
Following the departure last month of Stephen Gilmore to CalPERS, Alex Bacchus has been appointed Acting Chief Investment Officer (CIO). Alex has been with us since 2009, most recently leading the Fund’s strategic tilting programme – a key component of our active investment approach.
Head of Risk Michael Mitchell, another long-standing staff member, has been appointed Acting Chief Risk Officer (CRO), following the retirement of Mark Fennell at the end of June after 17 years with the Guardians in a range of senior roles.
Mark’s wisdom, humility, and kindness has left an enduring impact on the Guardians’ culture and the establishment of our Portfolio Completion function, which he led, has generated significant value for the Fund. We wish Mark a happy and fulfilling retirement.
Global searches to recruit a permanent CIO and CRO are underway.
Portfolio Update
In brief, a couple of portfolio changes of note over the last few months:
ConnectEast Group – along with Teachers Insurance and Annuity Association of America, we finalised the sale of our 19.8% stake in Connect East Group to the Future Fund and QIC. Connect East Group operates Victoria’s largest toll road network, including a 39km toll road (EastLink) and a 1km bypass. ConnectEast was a positive investment which added value to the Fund throughout our involvement.
Galileo – earlier this year, we increased our capital commitment to Galileo, a pan-European renewable energy developer, owner and operator, to support the business as it enters the next stage of its growth and executes on its strategic initiatives. Galileo’s strategy is similar to, but earlier stage than, Longroad – our renewable energy platform in the United States. The NZ Super Fund owns 20% of Galileo and fellow investors include Infratil, Morrison’s Growth Infrastructure Fund and the Commonwealth Superannuation Corporation.
Kaingaroa Timberlands – we have restructured the Fund’s 42% interest in Kaingaroa Timberlands Partnership, simplifying its ownership structure to reduce complexity and administrative costs, without changing effective economic ownership or control. Kaingaroa Timberlands continues to be a strong performing asset for the Fund, and forms a key part of our overall timber investment exposure.
Beachlands – Council Appeals Decision
In our last update, we reported that the Independent Hearing Panel had approved the plan change necessary to progress the Beachlands South development we are a partner in.
Since then, however, the Council has lodged appeals against the independent commissioners’ decision. While this is not entirely surprising, it is disappointing. The Beachlands South Partnership has joined as a party to the appeals.
The proposed Beachlands South development is for a 15-20 year development of 307.2 hectares of coastal land near Pine Harbour in East Auckland that includes the Formosa Golf Course. The master-planned development provides for new schools, a coastal walkway, village centre, and new housing.
Fund Exclusions
Earlier this month, we released our updated exclusions list, which we do twice a year. It contains the companies in which the Fund won’t invest, based on the principles set out in our Sustainable Finance Framework. The list contains 237 companies.
We exclude companies either because of the product they make or are involved in, or because of breaches of good corporate practice. In terms of products, exclusions are based on restrictions or prohibitions by international conventions New Zealand is a signatory to, as well as NZ law and Crown actions.
Excellence in Reporting Recognised
Our 2023 Annual Report pipped more than 150 other reports from Australia, New Zealand, and throughout Asia to win the Annual Report of the Year award at the Australasian Reporting Awards in Sydney in May. The Report also won the Financial Services Category, made the finals of the Governance category, and won an 11th consecutive Gold Award for meeting best practice reporting standards.
First Guardians Sustainable Finance scholarship awarded
We have awarded our first Sustainable Finance scholarship to third-year University of Otago student Laura Beagley, who is combining Finance and Ecology majors with a Sustainable Finance minor. We believe that sustainable finance is a key discipline for the future of our industry, and we’re pleased to support a student who’s passionate about entering this field.
