NZ Super's strategic tilting lifts fiscal 2023 returns
NZ Super has a year of change ahead, with a new chief executive to be announced later this year and two new board members to be appointed in 2024.
In its recently-released annual report for the year to June 2023, outgoing CEO Matt Whineray noted how the fund began in 2003 with a small team and an outsourced model, to evolved to a point where more than half of its NZ$65.4 billion exposure and most of its active risk is managed in-house.
NZ Super fund earned a total after-costs return of 11.9% for 2022/23. The total value of the NZ Super Fund rose by $9.7 billion during the year, ending at $65.4 billion.
This represents an excess return for the year of 8.1% over the cost to the government of contributing to the fund, as measured by the return on treasury bills, which was 3.8%.
Despite strong performance from some active investments, in particular the internally-managed strategic tilting strategy, the fund underperformed the passive reference portfolio for the year.
The strategic tilting team looks at shorter term opportunities and is able to make calls tnat it believes will boost returns over and above the reference portfolio allocation.
NZ Super
However, the negative NZ$102 million in underperformance is relative to the fund’s long-run target of 1% p.a. of outperformance and the achieved result since inception of 1.5% p.a.
Reviewing his 15 years at the super fund, five as CEO, Matt Whineray said, "I have learnt a great deal about the art and science of global asset ownership.
"I have learnt the critical importance of governance as a foundation for investment success ... I've also learnt that it's critical to diversify both active investment positions and market exposures. Being wrong is inevitable in markets. Investment strategies must be sized so that, if they fall, they're survivable,"
SUSTAINABILITY STRATEGY
As part of the super fund's climate change investment strategy, the fund has set two carbon reduction targets – to reduce the intensity of the NZ Super Fund’s portfolio by 40% by 2025; and to reduce fossil fuel reserves by 80% by 2025.
In 2021, the fund also made a commitment to achieve net zero carbon emissions by 2050.
This year the fund embedded the performance of the MSCI World Climate Paris-Aligned Index and the MSCI EM Climate Paris-Aligned Index as benchmarks for the passive reference portfolio exposure to global equities.
“As we integrate our approach to impact investment across the investment strategies in the portfolio, we expect to see a broader range of priorities emerge. A good example is the work we are undertaking in partnership with Copenhagen Infrastructure Partners to assess the feasibility and investment options for large-scale offshore wind power in the South Taranaki Bight,” said Whineray.
Whineray has also previously said that mere investment activity by large asset owners is not sufficient to drive the changes needed in decarbonisation.
"Voluntary acts by investors and companies like us are a great start. But decarbonising our portfolio through changing the make-up of the global equities portion — while it reduces our exposure to this risk — won’t do much to change the real-world outcome: we need new capital to flow to funding the transition, and we need governments and regulators to act as well,” he said at an event late August.
Anne-Maree O'Connor, head of sustainable investment at the New Zealand Super Fund also told AsianInvestor in July that climate change remains a pressing systemic risk.
"The cost of inaction is far greater than the cost of action, so it is in the public interest that all parties act with urgency to mitigate climate change.”
O'Connor said the the Climate Group’s six climate priorities resonate with NZ Super's objectives in its investment approach are a "pretty good match with what we would see as key objectives, particularly climate change, the biodiversity crisis and financing a safer, low carbon future."