Super Fund ramps up global exposure, posts profit

Michael Cullen Photo / Mark Mitchell

The New Zealand Superannuation Fund has ramped up its exposure to global equities, and posted a paper profit in July.

The so-called Cullen fund, which was set up by Labour Finance Minister Michael Cullen to partially fund pensions for an aging population, made a $700 million pretax profit, or a 4.76 per cent return, last month, starting off its new financial year in the black.

That comes after it made a paper-loss of 1.54 per cent in June and 4.82 per cent in May. The fund has some $16.4 billion under management.

In July the fund ramped up its holdings in global equities to 63.1 per cent, or $10.7 billion, of total assets in July, up from 45.1 per cent in June, with about two-thirds held indirectly through derivatives and one-third invested directly in stock for the month. That's more than the mandated 40.5 per cent global equities holding under the strategic asset allocation it set for itself in December 2007.

The move into global equities was matched by shift out of international fixed income, with the fund decreasing its stake offshore bond holdings to 7.1 per cent of total assets, or $1.2 billion, from 16.7 per cent in the previous month.

Paul Gregory, head of communications at Guardians of New Zealand Superannuation, said the shift in asset allocations comes as part of the fund's new Statement of Intent for 2010 to 2015, and is a response to shifts in the financial and economic landscape after the global financial crisis.

Details of the revised asset allocations are expected to be available in October, when the fund's financial results are released to parliament.

Current equity holdings are biased towards infrastructure stocks, with 1.4 per cent of the fund invested in Transurban Group, the Australian toll road company, 1.1 per cent in Swiss airport operator Flughafen Zuerich AG, and 1 per cent in ConnectEast Group, which owns and operates Melbourne's EastLink motorway.

The fund's largest local holding are in Auckland International Airport Ltd. (1.6%), Fletcher Building Ltd. (0.8 per cent) and Contact Energy Ltd. (0.6 per cent).

Since its inception in September 2003, the fund delivered an absolute return of 6.1 per cent, an excess of 0.18 per cent over benchmark Treasury bills.

Its primary investment target is to exceed the risk-free rate of return by an average of at least 2.5 per cent per annum over rolling 20-year periods.

Absolute returns were after fees but before tax, which the fund regards as a return to the crown.