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Year Ended 30 June 2019

For the financial year to 30 June 2019, the Fund returned 3.6% before tax and after investment management fees (compared to 7.7% for the Reference Portfolio) as alternative investments under-performed both bonds and equities.

This year’s under performance pulled the Fund’s average investment return for the last five years back to 8.6% per annum net of fees, 0.2% per annum behind the Reference Portfolio but 2.8% per annum above NZ Government Bonds.

Over the last 5 years the Fund investment return, net of investment fees, averaged 5.6% pa, 0.2% pa behind the Reference Portfolio and 2.8% above NZ Government Bonds.  Over the last 10 years, the Fund investment return has been 10.1% pa, compared with the Reference Portfolio return of 10.4% pa and NZ Government Bonds return of 5.7%.

Table 1: Investment Performance

Year ended
30 June 2019
($ million)
Year ended
30 June 2018
($ million)
Surplus before tax    149.5     424.7
Less income tax expense    (32.7)         3.4
Surplus after tax   116.8     421.3

Investment Returns

Investment markets were volatile in 2018/2019 punctuated by sharp declines in equity markets in December 2018 and a recovery through to the June 2019 year-end. Global equities returned a modest 6.4% for the financial year as a whole and global bonds a surprisingly strong 8.6%, helping the Reference Portfolio to a solid 7.7% return.

The Fund return on investments for the year ended 30 June 2019 was3.6% (before tax and after investment fees), under-performing the Reference Portfolio by 4.1%. The excess return over five years is now -0.2% per annum.

The main driver of the subpar performance was the Fund’s exposure to alternative assets, i.e. assets other than global equities and bonds that make up the bulk of the Reference Portfolio. 18% of the Fund is invested in alternative risk premia and insurance-linked securities and these had large negative returns. Alternative risk premia suffered from poor returns from the ‘value’ factor in large cap global equity markets without any offsetting gain from other factors that are normally useful, such as quality, momentum and yield. Major catastrophe claims in 2017 and 2018 hurt the Fund’s catastrophe insurance portfolio and increasing life expectancy estimates required a write-down of part of our life settlements portfolio. The purpose of these investments is to provide similar returns to equities on average while performing well when equities do badly. Despite a bad year, the Board is satisfied these alternative assets remain appropriate to the Fund’s objectives.

The Fund’s external equities managers, both global and domestic, had a poor year too, subtracting a further 0.9% from the Reference Portfolio.

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 2019

Asset ClassYear ended
30 June 2019
(Actual %)
Year ended
30 June 2019
(Benchmark %)
Total Fund1 and 2    3.6     7.7
Global bonds    8.3     8.6
Global equities    6.1     6.4
NZ equities  14.0   18.4
Catastrophe insurance   (3.1)    (0.7)
Life settlements (23.2)  (21.7)
Style Premia (10.6)     3.1
Currency overlay   (0.7)    (1.0)

1 The total Fund and global bond returns are hedged to NZD. Global equities, catrastrophe insurance and life settlements are the unhedged returns.  

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

3 The DAA overlay return was not included as the overlay commenced on 1 August 2018.

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 2019.

Table 3: Change in Net Asset Value of the Fund

Year Ended
30 June 2019
($ million)
Opening net asset value 1 July 2018   4,572.4
Interest and dividend income      115.4
Changes in Market Values:
     New Zealand Equities       37.3
     International Equities (including currency hedging)       97.0
     Global Fixed Interest       21.1
     Property         4.0
     Commodity Futures


     Global Private Equity       14.7
     Style Premia Fund      (37.5)
     Short-term investments         0.6
     Insurance-linked Assets (net)      (51.7)
Total        78.7
Income Tax Expenses      (32.7)
Operating Expenses      (44.6)
Net Membership Activities    (153.3)
Closing Net Asset Value 30 June 2019  4,535.9

Net Assets

The net assets are those used in the financial statements for the years ended 30 June 2019.