The New Zealand Superannuation Fund has had a stellar three years but chief executive Adrian Orr warns the high returns were the exception rather than the rule.
The fund returned 19.6% over the past three years.
The fund's long-time horizon, with no payments forecast until 2029-30, meant it was in a position to take on more investment risk than many other funds.
''We are positioning the fund for the long term. There may be times when the fund's performance lags the market. We are prepared to weather this, sometimes for an extended period, in order to get the best long-term outcome.''
The fund returned 13.89% during 2014, finishing the year at $27.54 billion.
A heavy weighting to global equities and a fall in the New Zealand dollar had combined to deliver strong returns, Mr Orr said.
The fund's 13.89% return exceeded a 12.42% return for its passive reference portfolio benchmark and a 3.08% for treasury bills.
Treasury bills were a measure of the cost to the Government of contributing to the fund instead of paying debt.
Looking ahead, Mr Orr said he expected the fund would deliver more muted returns.
Many asset classes were nearing full value, economic growth remained patchy globally and it was becoming hard to find good investment opportunities.
Over the long term, the fund was expected to generate average returns of 8% to 9% a year, based on current portfolio settings.
''While we are confident the fund will exceed its benchmarks over time, the very high returns of the last few years are unlikely to be repeated. They are the exception, not the rule.''
The fund had reduced the overall risk it was taking in recent months, but it continued to have a strong weighting to growth assets, he said.
Noting current volatility in global markets, Mr Orr said stakeholders could expect to see sizeable changes in the value of the fund over short periods.
The size of the fund could increase or decrease by several hundred million dollars on a daily basis - that was normal and within expected parameters.
It was important to retain perspective and understand the market fluctuations could work to the advantage of long-term investors such as the fund, he said.
The fund continued to explore opportunities to invest in New Zealand.
''We will exploit our hometown advantage when we can, while remaining prudently diversified across geographies and asset classes.''
• At December 31, the fund had holdings in New Zealand listed companies including Z Energy, Metlifecare, Fletcher Building, Spark, Fisher and Paykel Healthcare, Auckland International Airport, Meridian Energy, Contact Energy, Ryman Healthcare and Summerset group.
International listed company holdings included stakes in Apple, Total SA, Zurich Airport, Exxon Mobil, Sanofi SA, Microsoft, Simon Property, Johnson ansd Johnson, BNP Paribas and Wells Fargo.
The NZ Super Fund
• The fund has $3.8 billion invested in New Zealand and has paid more than $3 billion in New Zealand tax over the past five years, making it one of New Zealand's largest taxpayers. This included $850 million paid during the 2014 calendar year.
• Since inception in September 2003, the fund has returned 9.95%. It has generated $11.4 billion more than the Treasury bill return of 4.66% and beaten its passive reference portfolio benchmark by $3.1 billion, or 1.11%, since inception. High returns exception not the rule.
