The $19 billion New Zealand Superannuation Fund is having a strong year to the end of February, but that was before the earthquake, tsunami and nuclear crisis hit Japan.
New Zealand's retirement nest egg made a 3 per cent return in February, with a strong rally in world sharemarkets, taking its financial year-to-date return to 22.5 per cent.
The return so far for the first eight months of the financial year is better than any full year since the fund was set up in 2003.
The lion's share of the fund, almost 63 per cent, is in global shares, worth about $12b at the end of February.
However, world markets took a hit and Japanese shares plunged after the earthquake on March 11, before partly recovering the losses.
"The Super Fund has about $475m invested in Japan and its shares went down in line with the main share index.
"Our exposure to Japan across all investment classes – including catastrophe bonds linked to Japan, equities, fixed interest, and a little bit of property – is 2.5 per cent of the fund," Paul Gregory, a spokesman for the Guardians of New Zealand Superannuation, said.
On an annualised basis, the NZ Super Fund has returned an average of 7.9 per cent a year since the fund began, despite a huge collapse in the fund during the global financial crisis in the 2008/09 year when the fund lost more than 22 per cent of its value.
The average annual returns are seen by some experts as much better than expected for the fund, especially when it has no new contributions from the Government coming in, so it needs to sell existing assets to make new investments. Mr Gregory said that the fund would not lose money on its catastrophe bonds linked to Japan because of the 8.9 quake there, the subsequent tsunami, and the linked nuclear accident.
It began investing in the disaster funds, known as "cat bonds" in February 2010 with US$125 million (NZ$169.6m), and since May has had a commitment to invest US$300m, though not all of that has yet been invested.
NZ Superannuation invested in cat bonds through Chicago-based Elementum Advisors, LLC, and said in its annual report that most of the money went into securities that covered US hurricanes and earthquakes, with some products covering European windstorms and Japanese earthquakes.
Despite the exposure to specific earthquakes in Japan, Mr Gregory said that the Guardians did not expect losses on the cat bonds because the specific triggers set for payouts were different to what actually happened.
Insurers and re-insurers typically sell cat bonds to help cover their most extreme risks such as an earthquake rocking Tokyo or a hurricane with the force of Katrina hitting Miami.
The NZ Super Fund will not start to pay out before 2031.
The Government dropped $2b a year contributions to the fund in the 2009 Budget, for at least a decade to reduce Crown borrowings.
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