NZ Super Fund chief executive Matt Whineray talked of lower returns on the horizon on Thursday as he released the fund’s strong result for calendar 2019 – a 21% gain.
At June 2019 (the end of its financial year), the fund had grown to net assets of $43.1 million, by the end of December it had reached $47 billion, and this weekend the fund’s clock on estimated fund size had it over $48 billion.
However, Mr Whineray said, “the NZ Super Fund expects a slightly less turbulent market environment in the near term, following an eventful 2019….
“In the short term, the fund is taking less active risk and we expect lower returns than we have enjoyed in recent years. Looking further ahead, we remain well positioned to exploit emerging opportunities and are exploring a range of potential investments in New Zealand & abroad, particularly in infrastructure & real estate.”
Two-thirds of the Super Fund is invested in its passive reference portfolio, which returned 22.74% for calendar 2019.
Mr Whineray said the reference portfolio did better than the fund’s actual portfolio largely because of the timing of the fund’s private market asset revaluations, which are assessed less frequently than listed equity holdings.
“The net effect is that, during periods when liquid equity markets rally strongly, as was the case during 2019, the performance of those infrequently valued assets tends to lag the reference portfolio proxy (of listed equities & bonds).”
In a quick survey of world markets & trends, Mr Whineray finished on this note:
“The market now exhibits pockets of elevated corporate leverage & vulnerabilities. The US leveraged loan market has more than doubled in size to over $US2 trillion since 2012, which is a particular area of concern given reports of some deterioration in lending standards. In addition, slower earnings growth and technological disruption suggests there could be trouble ahead.”
Attribution: NZ Super Fund.