NZ Super Fund annual return nearly 18 pc

Pension pot the New Zealand Super Fund has hit a new high and is now just shy of $22 billion.

At the end of February, the fund reached $21.99 billion after returning 1.31 per cent for the month.

That takes the fund's returns for the past year to 17.58 per cent, or 8.41 per cent on average each year since it started in September 2003. Just under $3.4b of the money is invested in New Zealand.

The Super Fund measures its own performance in two ways - beating the virtually risk-free 90-day bank bill rate by at least 2.5 per cent on a rolling 20-year average, and beating a benchmark passive investment portfolio designed to estimate what a passive investment strategy would have returned over the same period.

At the moment it is sitting ahead of both benchmarks.

The passive portfolio sits at 7.67 per cent since the Super Fund was set up and the 90-day bank bill rate plus 2.5 per cent would have given returns of 7.53 per cent.

The fund's managers the Guardians of NZ Superannuation say that means they have netted benefits of at least $1.5 billion by their active investment strategy.

However critics say the fund should be measured against the cost of Government debt, a chunk of which could theoretically be repaid if the assets were sold, with an added margin to justify taking a risk.

In February fund critic Michael Littlewood of the Retirement Policy and Research Centre at Auckland University said that up until June 2012 the fund had beaten the cost of debt by $346 million over nine years.

That was not enough to justify the investment risk, he said.

The Government funnelled $14.88 billion into the Super Fund before National froze contributions in 2009. The intention has been to starting paying again when the Government's books return to surplus.

Colloquially known as the Cullen Fund after its creator former Finance Minister Michael Cullen, it was started to help pay for a sharp rise in pension costs relative to GDP as tail-end baby boomers move through retirement in the 2030s onwards.

Over the years it has posted volatile returns because of its heavy weighting to shares and other growth assets.

However, the fund says it is able to withstand big ups and downs because the first money will not be withdrawn for nearly two decades.

Overall 61 per cent is invested in global equities with the rest in various assets including New Zealand shares, fixed income, infrastructure, forestry, and private equity investments.

The fund has big unlisted stakes in Kaingaroa forest - the fund's biggest single investment at $948 million - followed by $526m in Z Energy.

Values were the latest available as at the end of February.

The two biggest investments in New Zealand listed firms are Telecom and Fletcher Building, which accounted for 0.7 per cent and 0.5 per cent respectively of the total assets. Auckland Airport has moved down the rankings of holdings to third place since the fund conducted a sell-off recently, and now accounts for 0.4 per cent or $78 million.

Transurban and Zurich Airport are the fund's biggest investments in listed overseas firms, representing 1.5 per cent and 0.3 per cent of assets respectively.