Super Fund says it failed to pick 'contagious effect' of crisis

Super Fund chairman David May and chief executive Adrian Orr. Photo / Richard Robinson.

The New Zealand Superannuation Fund failed to predict the "contagious effect" of the financial crisis on its assets but recovered ground because of its focus on diversification, Guardian's chairman David May says.

The fund, which was set up in 2003 to help pay for the future superanuation costs of retiring New Zealanders, yesterday released its annual report for the year to June 30.

Although performance figures were released last month the report reveals the extent of the damage of the crisis on the fund which made a loss of $3.2 billion before tax.

May said it had been a tough year for the fund with the 2008/09 results "erasing" gains made in the first five years of the fund.

The super fund's annual return on investment since launch dropped to 3.8 per cent, well below the 6.6 per cent per that could have been achieved if the money had been invested in Government treasury bills.

But May said unlike most investors the fund had an extremely long time horizon and the ability to withstand more volatility in its returns.

"Our investment strategy... has been designed with these chararteristics in mind."

May said the crisis had tested the fund's tolerance for volatility but he believed it should continue to stay on the same path.

"Now is the time we must retain our discipline to stay the course, retain our focus on the long term and capitalise on our ability to ride out tough patches without selling undervalued assets."

May said the fund, like others, had failed to predict the impact that the crisis would have on economic growth and real assets.

"Our assessment at the time was that markets were not significantly overvalued and that over the long term, investment in growth assets would continue to provide superior risk-adjusted returns."

May said the fund had decided not to try and out-guess the markets to predict short-term movements and had focused on managing and diversifying its risks instead.

As a result of that decision the super fund had experienced a significant rebound in returns since March 2009.

The fund stood at $13.6 billion at the end of June but had risen to $15.18 billion as of September 23.