New Zealand’s Sovereign Wealth Fund Expects to Triple in Size by 2035

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.