Portfolio Update – The value of the NZ Super Fund has mirrored the performance of global risk assets over the past couple of months, dropping to $74 billion following US President Donald Trump’s “Liberation Day” tariff announcements on 2 April and subsequently recovering to pass $83 billion.
Periods of volatility are part and parcel of running a growth-focused portfolio, which we continue to believe is the investment strategy best suited to our mandate and to our purpose, Sustainable Investment Delivering Strong Returns to All New Zealanders.
As a long-term investor, we are able to ride out, and even take advantage of, short-term market volatility. For example, one of our most successful active strategies over the past few years is Strategic Tilting. This strategy is based on our belief that investments tend to return to fair value over time and that, given our long-term investment horizon, we can improve our risk-adjusted returns by reducing our exposure to assets we believe are over-priced assets in favour of holding assets we believe offer value.
As we have seen during the GFC and at the outset of the Covid pandemic, this strategy can generate losses over the short to medium term: our operational independence and our clearly defined governance model are essential to the success of this strategy.
Market Conditions
Financial markets remain closely attuned to developments in U.S. trade policy and ongoing tariff negotiations under the Trump Administration. These policy uncertainties, combined with concerns over the recently released federal budget – which is projected to significantly widen the U.S. fiscal deficit – have heightened investor caution.
As a result, long-term U.S. Treasury yields have risen, driven in part by increased investor demand for alternative sovereign debt instruments. Notably, Japanese Government Bonds (JGBs) have seen a pickup in yields, offering a relatively attractive option for investors seeking safety and yield diversification. This shift in sentiment has also contributed to a modest depreciation of the U.S. dollar against major currencies.
Global economic activity expanded at a moderate pace in Q1, but recent indicators suggest a softening in momentum across several economies. Inflation remains broadly in line with central bank targets, helped by subdued energy prices. In response to the cooling outlook, central banks in New Zealand, Australia, and the Eurozone have eased monetary policy, while the U.S. Federal Reserve held interest rates steady.
Adding to global uncertainty, escalating geopolitical tensions in the Middle East have driven a sharp increase in commodity prices, particularly in oil markets. These developments are likely to be a key source of market volatility in the near term.
The NZ Super Fund in the Budget
The amount of money the government is required to contribute to the Super Fund is determined by a formula set out in Section 43 of our Act (the New Zealand Superannuation and Retirement Income Act 2001).
It is a complicated-looking calculation, but the most important inputs are the expected nominal GDP and net cost of superannuation over the following 40 years and the size of the Super Fund.
If nominal GDP or the size of the Super Fund is higher than expected (or if the net cost of superannuation is lower), the Government is required to contribute a lower amount.
These forecasts are updated by Treasury every six months at the Budget Economic and Fiscal Update (BEFU) and the Half-Year Economic and Fiscal Update (HYEFU).
At the last HYEFU, Treasury forecast that the government would be able to make its first withdrawal from the Super Fund in 2031 ($96 million).
Last month’s updated numbers, published alongside Finance Minister Nicola Willis’s 2025 Budget, forecast that the first withdrawal would come in 2028 ($32 million). 2036 remains the year where withdrawals are forecast to pass $1 billion for the first time.
Reductions in forecast government contribution have been a trend for the past few years, driven by higher-than-expected returns from the Super Fund and lower-than-previously-expected future net superannuation costs.
The Elevate Fund
The Budget also contained the news that the Government would divert this year’s capital contribution of $61 million to the Elevate Fund, along with a further $39 million from the government’s capital allowance.
This $100 million commitment provides some welcome certainty for NZGCP, whom the Guardians appointed to manage Elevate in line with the legislation that established the fund in 2019 (the Venture Capital Fund Act), and matches the approach taken by the previous government when it first set up Elevate.
We look forward to continuing to work with NZGCP to maintain Elevate’s contribution to increasing the venture capital available to New Zealand entities and developing New Zealand’s venture capital markets to function more effectively.
Minister of Finance’s Letter of Expectations
We have now published our response to the Letter of Expectations 2025/26 that we received earlier this year from Finance Minister Nicola Willis.
Click here to read the Minister’s letter, and here to read our response.
Guardians staffer elected to ILPA board
Del Hart, our Head of External Investments and Partnerships, was recently elected to the Board of the Institutional Limited Partners Association. With 618 institutional members drawn from 50 countries, the ILPA is an important industry advocate and thought leader.
Private markets are growing and changing rapidly. Del’s perspective will be of great value as we continue to refine our thinking about investing in this asset class.
Industry recognises Leadership Team member’s career and contribution
Paula Steed, recently appointed as Guardians GM Technology (and previously GM Strategy and Shared Services), has been inducted as a Fellow of the Chartered Accountants Association of Australia and New Zealand (CAANZ). Fellowships are given for outstanding career achievements or contributions to the profession, as decided by CAANZ members.
NZ Super Fund Scholarship winner
Avondale College alumna Chana Malungahu is the latest recipient of the NZ Super Fund AUT Business Scholarship – Pacific. Chana, who enrolled at AUT in the second semester last year, is currently studying business strategy, international business management, and entrepreneurship and innovation, and working towards a Bachelor of Business degree.
AUT Business School announced the award of this scholarship via their LinkedIn page.
Annual Report voted best in Australasia
For the fourth time in five years the Guardians’ annual report has been named Report of the Year at this year’s ARA awards. Judges described the report as “designed to engage readers and effectively communicate the organisation’s messages … customer centric and easy to understand.”
Read our Annual Report for FY24 here.
The Judges’ comments and a full list of award winners can be found on the ARA website.
In the news
Guardians Board member (and former Senior Investment Strategist at the NZ Super Fund) Sue Brake and CalPERS Chief Investment Officer (and former Chief Investment Officer at the NZ Super Fund) Stephen Gilmore talk about the Total Portfolio Approach to investing with Thinking Ahead Institute Associate Director Isabella Martin – the latest in Isabella’s Investing for the Future series of podcasts.
The Guardians is gearing up to combine a multitude of investment data models across the organisation into a central model-of-models, which should lead to better investment decisions and cost savings. Maaike van Tol, our Director of Portfolio Design, recently sat down with the Investment Innovation Institute’s Director of Content, Wouter Klijn, to talk about how a comprehensive data analytics function can lead to more meaningful conversations, better investment decisions, and lower costs. Read Wouter’s report here.
Sustainable Investment Analyst Laumanu Mafi recently featured on RadioNZ’s Pacific Waves programme, where she and host Susana Suisuiki discussed some of the difficulties Pacific women face in accessing the retirement benefits they need. An economist by training, Laumanu spent three years on the investment team at Tonga’s Retirement Fund Board before joining the Guardians two years ago. Go to RNZ Pacific to listen to their conversation.
Congratulations to former Guardians Board member Mark Tume, winner of the Invest New Zealand – Te Tohu Kahukura Māori Leadership in Finance Award at the recent INFINZ awards. A full list of award winners can be found here.
