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 Authority aims to maximise the Fund's excess return relative to New Zealand Government bonds (before New Zealand tax) without undue risk of under-performing New Zealand Government bonds over rolling ten year periods.
The Authority has adopted a Reference Portfolio for accountability and performance measurement purposes. The Reference Portfolio is a simple notional portfolio that could be managed at low cost and return more than New Zealand Government bonds while meeting the Fund's risk objectives. The long term expected excess return of the Reference Portfolio varies somewhat over time. The Reference Portfolio also provides a benchmark to measure the Authority's performance in generating value-added returns.
Earlier this year the Board approved a change to the composition of the Reference Portfolio, increasing the allocation to global equities and reducing the allocation to fixed interest. The change was implemented by 30 June 2020. The old and new Reference Portfolios are set out in the following table.
|Asset Class||Weight as at 30 June 2018 (%)||Weight as at 30 June 2020 (%)||Benchmark|
|Global equities||60||70||MSCI All Country World Index|
|New Zealand equities||10||10||S&P/NZX50 Gross Index including imputation credits|
|Fixed interest||30||20||Bloomberg Barclays Global Aggregate Index|
|Foreign currency exposure||20||20|