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Year Ended 30 June 2018

The Fund had good return on investments for the year of 10.5% before tax and after investment fees. The Fund's return was 0.5% behind its Reference Portfolio (a passive alternative investment strategy) but significantly ahead of the 4.2% return on New Zealand Government bonds in 2018. Over the last 5 years the Fund investment return averaged 10.7% per annum (p.a.), 0.3% p.a. ahead of the Reference Portfolio and 6.1% p.a. above New Zealand Government bonds .Over the last 10 years the Fund investment return has been 7.3% pa compared with the Reference Portfolio 7.2% p.a. and New Zealand Government bonds 5.8 % p.a.

Table 1: Investment Performance

Year ended
30 June 2018
($ million)
Year ended
30 June 2017
($ million)
Surplus before tax424.7520.2
Less income tax expense    3.4 (71.7)
Surplus after tax 421.3448.4

Investment Returns

Investment returns continued to be strong in the 2018 financial year. The Fund return on investments for the year ended 30 June 2018 was 10.5% (before tax and after investment fees), underperforming the Reference Portfolio by 0.5% and reducing its excess return over five years to 0.3% per annum. For the first time in several years active management subtracted value.

Global equities returns, while solid at 10.8% in local currency terms, moderated from the strong returns of recent years owing to perceptions of peaking global growth and heightening concerns about international trade relations. Unhedged returns were boosted to 18.9%, however, by a sizeable drop in the NZ dollar (NZD). NZ equities performed in line with global markets. Global bonds provided small positive returns. The Fund’s alternative investments had mixed returns but exceeded the low returns on global bonds.

Returns from global financial assets, especially equities, have been strong over the last five years. The global economy has returned towards more normal and sustainable growth rates, which has been reflected in improving asset values.

Over the last five years the Fund has returned 10.7% per annum net of investment fees. The comparative return for the same period for the Reference Portfolio is 10.4% per annum and for NZ Government bonds is 4.6% per annum.

Measured over the last 10 years, the Fund’s return exceeds the Reference Portfolio slightly and is 1.5% per annum ahead of NZ Government bonds.

Below is a comparison of the returns from each asset class compared to the relevant asset class benchmark. (All returns in New Zealand dollars before tax and after investment fees.)

Table 2: Asset Class Returns compared with Benchmarks for the financial year ended 30 June 2018

Asset ClassYear ended
30 June 2018
(Actual %)
Year ended
30 June 2018
(Benchmark %)
Total Fund10.511.01
Global Fixed Interest  1.5  2.1
Global Equities18.9219.6
New Zealand Equities19.918.7
Catastrophe insurance  1.6  8.4
Life settlements19.4  7.6
Style Premia  9.5  9.6
Currency overlay -6.03 -6.3

1 The benchmark for the total Fund is the Reference Portfolio.

2 Returns are unhedged. All other asset class returns are hedged to New Zealand dollars.

3 Currency overlay return includes full hedging of all international assets except global equities and style premia, which are hedged partially.

Change in Net Asset Value of the Fund

Set out below is a table showing the change in the net asset value of the Fund for the financial year to 30 June 2018.

Table 3: Change in Net Asset Value of the Fund

Year Ended
30 June 2018
($ million)
Opening net asset value 1 July 20174,271.2
Interest and dividend income   120.3
Changes in Market Values:
     New Zealand Equities     50.0
     International Equities (including currency hedging)   272.8
     Global Fixed Interest    -10.8
     Property       1.0
     Commodity Futures


     Global Private Equity     33.1
     Multi-asset and Style Premia Fund       2.8
     Short-term investments       3.1
     Insurance-linked Assets (net)      -9.3
Total    349.3
Income Tax Expenses      -3.4
Operating Expenses*    -45.1
Net Membership Activities  -120.0
Closing Net Asset Value 30 June 20184,572.4

Net Assets

The net assets are those used in the financial statements for the years ended 30 June 2018.