NZ Super Releases White Paper on 2020 Reference Portfolio Review

Posted on 01/19/2021


The Guardians of New Zealand Superannuation, the Crown entity that manages the NZ Super Fund (New Zealand Superannuation Fund), has published a white paper documenting the outcome of its 2020 review of the Fund’s Reference Portfolio.

According to the press release, “The Reference Portfolio is the basis on which the majority of the Fund is invested, and represents the single biggest driver of Fund returns. It is designed to gain broad, low cost access to listed global investment markets, in order to maximise the Fund’s returns without undue risk to the Fund as a whole. It is also a benchmark for active investment.

The review reaffirmed the Reference Portfolio’s strong weighting towards growth assets, retaining an 80% allocation to growth assets (equities) and 20% to fixed income assets (bonds). An existing 5% allocation to listed New Zealand equities also remains unchanged. There has been a minor change to the structuring of the global equities exposure within the Reference Portfolio. Further details are contained in the paper.”

The Guardians plan to review the reference portfolio next time in 2025. The Guardians expects that over the long-term the reference portfolio will return 6.8%, 2.8% above the estimated risk free (Treasury Bill) interest rate, a proxy for the cost to the New Zealand government to contribute to the NZ Super Fund.

The writers of the report view the reference portfolio’s difference to strategic asset allcoation as it encourages a greater separation between governance and management, focusing the Board on long-term strategic decisions while providing greater flexibility for management to add value to the portfolio over and above what can be achieved by simply implementing the reference portfolio.

According to the report, “Four key questions were central to our review of the Reference Portfolio:

1. What asset classes should be represented in the Reference Portfolio?
2. How much should be allocated to New Zealand assets?
3. Should we hedge interest rate and inflation risk?
4. What currency hedging strategy is appropriate?”

NZSF Reference Portfolio Composition

Asset Class 2010 2015 2020
Developed Market Equities 70% 65% 75%
Emerging Market Equities   10%  
New Zealand Equities 5% 5% 5%
Global Listed Property 5%    
TOTAL GROWTH 80% 80% 80%
Global Fixed Income 20% 20% 20%
TOTAL 100% 100% 100%

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