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Year Ended 30 June 2017

The Fund had good return on investments for the year of 13.9% before tax and after investment fees. The Fund's return was 1.4% ahead of its Reference Portfolio (a passive alternative investment strategy) and significantly ahead of the 0.2% return on New Zealand Government Stock in 2017. Over the last 5 years the Fund investment return averaged 12.1% per annum (p.a.), 0.8% p.a. ahead of the Reference Portfolio and 8.3% p.a. above New Zealand Government Stock .Over the last 10 years, which spans the global financial crisis, the Fund investment return has been 5.7% pa compared with the Reference Portfolio 5.6% p.a. and New Zealand Government Stock 6.3 % p.a.

Table 1: Investment Performance

Year ended
30 June 2017
($ million)
Year ended
30 June 2016
($ million)
Surplus before tax520.260.8
Less income tax expense (71.7)(73.5)
Surplus after tax 448.4(12.7)


Investment Returns

Investment returns were strong in the 2017 financial year. The Fund return on investments for the year ended 30 June 2017 was 13.9% (before tax and after investment fees), outperforming the Reference Portfolio by 1.4%.Global equities returns of 16.3% were the big driver as global growth recovered. For the same reason global bonds suffered small capital losses that almost offset their low running yields. NZ equities performed in line with global markets. The Fund’s alternative investments had a disappointing year but were comparable to the low returns on bonds.

Returns from global financial assets, especially equities, have been strong over the last 5 years. The risks from the global financial crisis in 2008 have receded and the global economy has returned towards more normal growth rates, which has been reflected in improving asset values.

The Fund’s gross investment return of 13.9% last year exceeded the Reference Portfolio return by 1.4% and has averaged similar excess return for the last 3 years. This significant added value reflects strong contributions from the Fund’s active global equities and bond managers. Over the last 5 years the Fund has returned 12.1% per annum net of investment fees. The comparative return for the same period for the Reference Portfolio is 11.3% per annum and for NZ Government Stock is 3.8% per annum.

Measured over the last 10 years, the Fund’s return matches the Reference Portfolio but is 0.7% below NZ Government Stock as that period includes poor global equity market returns in the 2008 global financial crisis.

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 2017

Asset ClassYear ended
30 June 2017
(Actual %)
Year ended
30 June 2017
(Benchmark %)
Total Fund13.912.51
Global Fixed Interest4.60.8
Global Equities16.3215.4
New Zealand Equities13.511.6
Catastrophe insurance1.21.5
Life settlements-4.2-4.4
Currency overlay3.333.1

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 international equities and multi-asset
   class, which are hedged partially. The difference in return from the benchmark this year is due largely to active lowering
   of the hedge ratio below the benchmark ratio of 80% of total Fund assets (after tax).

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 2017.

Table 3: Change in Net Asset Value of the Fund

Year Ended
30 June 2017
($ million)
Opening net asset value 1 July 20163,960.9
Interest and dividend income   103.4
Changes in Market Values:
     New Zealand Equities     34.4
     International Equities (including currency hedging)   395.6
     Global Fixed Interest       6.1
     Property      -1.0
     Commodity Futures      -2.5
     Multi-asset and Style Premia Fund     18.2
     Insurance-linked Assets (net)       7.3
Total    458.1
Income Tax Expenses    -71.7
Operating Expenses*    -41.3
Net Membership Activities  -138.2
Closing Net Asset Value 30 June 20174,271.2

Net Assets

The net assets are those used in the financial statements for the years ended 30 June 2017.