apr-11.pdf (2.07 MB) - Crown Ownership Monitoring Unit

Fund composition and performancePrior to 2001 GSF was invested entirely in New Zealandfixed interest securities. Since then it has diversifiedinto growth assets like property and shares, which nowcomprise approximately 75% of the Fund.The Fund is managed on an active basis, meaningfund managers are employed to outperform relevantmarket benchmarks. Active management is intendedto produce a return above a low-cost passive portfolio(the Fund’s Reference Portfolio, adopted on 1 July2010), without incurring additional risk. In 2010/11 theFund delivered a return of 13.7% on a before tax andafter fees basis. While active management addedvalue in most asset classes, the decision to have alower currency hedge position relative to the ReferencePortfolio adversely impacted on returns because ofthe sharply rising New Zealand dollar, resulting inunderperformance of 2.7% over the year. Although theFund has underperformed its Reference Portfolio, its riskas measured by volatility has also been lower than theReference Portfolio.The Fund’s investment objective is to outperform theNew Zealand Government Stock Index plus 2.5%after tax over a 10-year period. The Fund’s long-termperformance continues to lag this measure despite thestrong absolute return in 2010/11.At year end the Fund was considering an investment in alife settlements vehicle to further diversify its portfolio ofgrowth assets.It is normal practice for a superannuation fund tomatch, as best as possible, its assets and liabilities.This ensures that any changes in the value of liabilitiesare also reflected in the value of assets, resulting in anunchanged net position. It is not possible to achieve amatch in the case where the assets are significantly lowerthan the liabilities, as in GSF’s case. GSF’s gross liabilityfor promised retirement benefits is $12.3 billion as at30 June 2011, meaning there is an unfunded liability of$9.1 billion. The strategy of investing in growth assets,therefore, is intended to reduce the unfunded liability asthese assets are expected to grow at a faster rate than thevalue of the liabilities. This mismatch will produce volatilityin the value of the unfunded liabilities over short periodsof time, owing to fluctuations in the value of the assets ofthe Fund.page | 57