Super Fund forecast falls as asset prices recover

The Guardians of the NZ Superannuation Fund say a recovery in asset prices is behind a lower forecast for the performance of the $16.7 billion fund this year.

The "Cullen Fund", which was set up in 2003 to help pay for the future costs of retiring New Zealanders, yesterday released its statement of intent for the year to June 30, 2011. It forecasts a mid-point annual return of 8.65 per cent over five years - down more than 2 percentage points on last year's forecast. Last year the fund predicted an average annual return of 10.7 per cent over five years. So far it has returned 23.1 per cent in the year to April 30.

A spokesman said the 2009/10 prediction was higher because it had been made at the end of a period when markets were down. The lower estimate for this financial year reflected the strong market returns since the end of June 2009.

"Higher starting prices for the various asset classes in which the fund invests imply lower projected returns for the near future," the statement said.

The forecast is based on the best estimates of the Guardians for investment returns in a range of asset classes over a 20-year period and is then converted into five-year blocks to give an annual forecast.

The Super Fund is also expected to cost less to run this year. Last year the Guardians put the cost at $21.84 million but this year they believe it will be $21.7 million. The spokesman said the lower costs reflected a shift in investment from active to passive management of some assets. The state of the market last year had also meant it could not get involved in some investment activity which had saved money.