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Commentary - Year ended 30 June 2022

The very strong investment returns of recent years reversed sharply in the second half of the financial year. After rebounding in 2021, following the Covid-19 induced market collapse in March 2020, the global share market fell sharply again from late 2021. Monetary stimulus was withdrawn globally and interest rates rose sharply in response to the threat of rising global inflation.

The Fund returned -3.7% in the year to June 2022 (2021: 28.9%), net of investment management fees and before tax. This is a good outcome given the exceptional -10.3% return for New Zealand Government Bonds and -10.8% return for the Fund’s benchmark Reference Portfolio. The Reference Portfolio comprises 70% global equities, 10% New Zealand equities and 20% global fixed income securities.

Active managers contributed positively to this outcome. Private equity was the largest source of added value, partly because of the time lag in relation to the revaluation of private equity investments. The Fund’s investment in alternative assets, such as insurance-linked securities, also contributed positively to the return this year through diversification away from equities and bonds.

The Fund’s returns are now ahead of the Reference Portfolio over all periods, having recovered ground lost in the bull market in financial years 2019 and 2020. The Authority aims to add 1% pa on average over ten-year periods from its alternative return sources, active managers and strategic tilting programme. Added value in the last ten years was 0.6% pa over the Reference Portfolio.

The assets of the Fund at 30 June 2022 totalled $4.9 billion (2021: $5.2 billion).During the year, the Fund increased its private equity investments further and exited its style premia investments, re-investing the proceeds into global equities and bonds.

The Fund is managed to have a similar risk profile to the Reference Portfolio with more diversification. When global equities rise strongly, the Fund may underperform the Reference Portfolio but is more likely to outperform New Zealand Government Bonds, which is the primary goal. The Reference Portfolio is expected to outperform New Zealand Government Bonds by 2.9% pa over the next ten years. This compares with 6.7% pa over the last decade and 2.3% pa since the Fund’s inception.

The Board is satisfied the overall risk level remains acceptable as the probability of the Fund underperforming New Zealand Government Bonds by more than 10% over ten years is currently estimated at about 15%.

The investment assets of the Fund are reviewed regularly to confirm they remain fit for purpose. We also regularly review our investment managers to confirm they are performing in line with expectations.

Table 1:  Investment Performance

Year ended
30 June 2021
$ million

Year ended
30 June 2022

$ million

Surplus before tax   1,188.0     (193.1)
Less income tax expense     (108.9)        52.4
Surplus after tax   1,079.1     (140.7)

Investment Returns for year to 30 June 2022

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 to Benchmark Returns

Asset Class

Year ended

30 June 2022

Actual %

Year ended
30 June 2022
Benchmark %
Total Fund1 and 2      -3.7   -10.8
Global bonds - 100% hedged      -8.9     -8.9
Global equities      -4.6     -5.5
Global private equities     43.6     -2.3
New Zealand equities    -11.3   -13.6
New Zealand private equities     21.9   -10.3
Catastrophe insurance     14.3    13.5
Life settlements     16.3    17.3
Currency overlay




1.  The Total Fund return includes currency hedging to the NZD.  Returns for global bonds, catastrophe bonds, catastrophe insurance and life settlements are fully hedged.  Returns for global equities and global private equities are unhedged.   

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

3.  The benchmarks for global private equities and New Zealand private equities are the same as for global equities and New Zealand equities respectively plus 3% pa.

Further information on the Fund is available in the Reports and Financial Statements for the year ended 30 June 2022.