Investment Performance Te whai hua o ngā haumitanga


The Year in Summary

The Fund again out-performed global markets, returning 20.71% (after costs, before NZ tax) over 2016/17. The Guardians’ active investment activities added value of 4.37% (NZD1.28b) on top of a Reference Portfolio (market) return of 16.34%.
The Fund finished the year at NZD35.37b before New Zealand tax, an increase of NZD5.27b.

The overall Fund’s out-performance of the Reference Portfolio was due mainly to the success of its strategic tilting programme and a positive performance by its single largest investment, Kaingaroa Timberlands. See page 30 for more details.


Return Drivers

Around two-thirds of the Fund is invested passively, in line with the Reference Portfolio. Therefore, the composition of the Reference Portfolio is the biggest single influence on Fund returns. The  table below shows how the components of the Reference Portfolio performed during the year. The returns are shown on a hedged to NZD basis.

Reference PortfolioWeight2016/17 Return
Global Equities - developed markets65%21.85%
Global Equities - emerging markets10%19.68%
New Zealand Equities5%10.35%
Global Fixed Income20%0.91%

Performance Summary

Fund performance as at 30 June 2017. Fund size: NZD35.37 billion before tax.

Since Inception
(Sept 2003)
Actual Fund returns
(after costs, before NZ tax)
Reference Portfolio return
(after costs, before NZ tax)
(Actual return - Reference Portfolio return)
Estimated $ earned relative to Reference Portfolio$1,285m$2,809m$4,802m$5,559m$6,247m
New Zealand income tax paid$923m$1,614m$3,379m$4,444m $5,561m
New Zealand Treasury Bill (T-Bill) Return 1.83%2.61%2.56%3.40%4.23%
Net Return
(Actual return - T-Bill return)
Estimated $ earned relative to T-Bills $5,562m$8,328m$16,984m$15,531m$19,088m
$ change in net asset position$5,268m$8,936m$16,377m$22,223m$35,373m


Value–Add in 2016/17

In this section, we report on value added or detracted by our active investments, by risk basket*, relative to our passive Reference Portfolio benchmark.

In total, the Fund out-performed the Reference Portfolio by 4.37% (NZD1.28b) over the year. This compares with a 0.52% (NZD155m) out-performance in 2015/16 and a 1.45% p.a. (NZD6.25b) out-performance since inception.

We expect to out-perform the Reference Portfolio by 1% per year, over the long-term, based on the level of risk we take.

It is important to appreciate that our active investment strategies are designed to maximise returns over the long term. Negative returns as well as positive, and movements up and down between years, are expected.

Risk baskets

vs. Reference 

Performance vs. Reference Portfolio 2016/17

e.g. Opportunistic, Buyout This basket contains opportunities that involve the skill to pick assets. These include internal and external mandates such as NZ active equities or one-off direct investments. The performance of these investments, which are expected to be long-term ones, reflected small revaluations relative to a rallying global equity market.



e.g. Active Collateral, Merger Arbitrage These opportunities are mainly in the area of credit and funding that often draw on the Fund’s sovereign status and liquidity endowments. These opportunities tend to have lower risks than those in the other two market pricing baskets since interest rate risks are generally hedged and trades are often implemented via arbitrage strategies. Active collateral, merger and direct arbitrage strategies all added value in this basket.


e.g. Global Macro, Strategic Tilting The opportunities in this basket draw on the Fund’s endowment of having a stable risk aversion compared with the market. These opportunities include strategic tilting, one of our internal mandates that systematically takes on risk after markets have fallen and takes risk off again after markets have recovered. Our tilting programme had a very strong year and has now returned 1.4% p.a. since it commenced. A white paper on our tilting programme is available on our website at:


e.g. Energy, Infrastructure, Real Estate These opportunities are mainly driven by our views of the pricing attractiveness of real assets in their respective markets, which include infrastructure, real estate, energy investments and expansion capital. Infrastructure as a whole made a positive contribution, but this was offset by the performance of our energy growth assets, which are at an early stage and not expected to deliver strong returns until they are more mature. In addition, the benchmark for these assets performed well off the back of rising global equity markets.



e.g. Emerging Markets Equity Up-weight, Timber This basket includes diversifying assets such as timber, life settlements and catastrophe bonds that are not represented in the Reference Portfolio. The basket also includes opportunities that we intend to maintain an allocation to (e.g. an overweight to emerging market equities) based on our favourable views on the medium to longer term opportunity drivers.

The vast majority of the value added by this basket during the year can be attributed to positive cash returns and a revaluation of our Kaingaroa forest investment.



* We have grouped opportunities under five broad classes (‘baskets’) based on our primary investment rationales of structural/diversification, market pricing and asset selection.

Read our full Performance Report (PDF 551KB)