The Authority is required to invest the Fund on a prudent commercial basis. In doing so, it must manage and administer the Fund in a manner consistent with best practice portfolio management, maximising returns without undue risk to the Fund as a whole.
The investment objective adopted by the Authority is:
Maximise the return on the assets of the Fund over the long term, without undue risk to the Fund as a whole, in a manner consistent with best practice portfolio management.
Following a review in 2013, the Authority has defined this objective as follows:
The Authority aims to maximise the Fund's excess return relative to New Zealand Government Stock (before New Zealand tax) with a one in four chance of under-performing New Zealand Government Stock by a cumulative 10% measured over rolling ten year periods.
Under current assumptions, this level of risk is consistent with an expected excess return of 2.5% per annum over the next 10 years.
The Authority reviews the asset allocation of the Fund regularly to ensure it remains consistent with the investment objective, legislative requirements and best practice.
The Authority has established a Reference Portfolio IN 2010 to define and monitor the Fund’s relative risk and return performance over shorter, interim periods. The Reference Portfolio is a simple, globally diversified asset allocation that is expected to meet a long term investment objective by investing passively in liquid public markets at low cost. The Reference Portfolio was last reviewed in 2013.
All active investment decisions are benchmarked against the Reference Portfolio to assess whether they have added value in terms of higher returns or reduced risk, net of costs.
The Fund’s asset allocation compared with the Reference Portfolio, is shown in the table below.
Table 1: Asset Allocation and Reference Portfolio as at 30 June 2016
|Asset Class||Actual Portfolio %||Reference Portfolio %|
|Global Fixed Interest||13.7||30|
|New Zealand Equities||10.7||10|
|Global tactical asset allocation||3.2||-|