By Nick Hedley
New Zealand’s NZ$55.7 billion (US$32.4 billion) sovereign
wealth fund, the NZ Super Fund, expects to nearly triple in size over the next
13 years.
The New Zealand government expects to start withdrawing
money from the fund to pay for universal superannuation from 2035.
“At that point, Treasury estimates the government will have
contributed net NZ$6.6 billion (US$3.8 billion) to the fund and the fund will
be worth more than NZ$150 billion (US$87.3 billion),” NZ Super Fund said in its
annual report. “Net contributions to the Fund will decrease over time because
the substantial amount of tax that the Fund pays in NZ will increasingly offset
Government contributions.”
Based on Treasury modelling, the fund will increase in size
from about 17% to 39% of GDP, while the taxes it pays will increase from 0.1%
to 0.6% of GDP.
The projections are based largely on return expectations.
Because no withdrawals from the fund are expected until 2035, it invests mostly
in risk assets.
“Our expectation, given our current active risk settings, is
that over rolling 20-year periods, the fund’s active investment strategies will
be able to add an extra 1% per annum above the 6.8% return we expect the reference
portfolio to deliver,” the report said.
One example of its “contrarian” approach is its strategic tilting
strategy, which uses derivatives to take positions across different investment
markets, including in equities, bonds, currencies and commodities.