Jo Townsend is the chief executive of the Guardians of the New Zealand Superannuation Fund.
The New Zealand Superannuation Fund generated returns of nearly 12% over the past year, beating its benchmarks and the wider market and seeing the fund grow to $85 billion.
Set up in 2001 by Sir Michael Cullen, then the Finance Minister, the New Zealand Superannuation Fund (NZSF) is intended to partly fund the ballooning future pension costs from New Zealand’s ageing population.
Chief executive Jo Townsend said that despite the NZSF being expected to start contributing funds to the Crown from 2028, it still had a long-term investment outlook.
“By 2028, we’re going to be a $100 billion fund. Paying $32 million then is really easy to make available,” she said.
“The most interesting thing for us is: when do those withdrawals become substantial enough that we have to wind back out allocation to high-growth, illiquid assets?”
Townsend said that tipping point, requiring a rebalancing of their investment profile that presently looked decades into the future, was some way off.
“That point, at the moment, is 20 years from now.”
For the year to June, the NZSF delivered a pre-tax return of 11.84%, compared to the average 90-day Treasury bill rate of 4.61%.
Returns exceeded the NZSF’s benchmark portfolio by nearly 1%.
The NZSF has consistently generated alpha returns, averaging 9.92% over the past two decades.
Townsend said despite the economic turmoil – from Covid, wars and tariffs – the last five years had seen higher returns than the five years prior as equity markets surged, despite economic worries.
“We always say it’s unlikely that we’ll deliver the strong returns we had in the past.
“But it’s been absolutely exceptional the last five years, despite the uncertainties in the world that seem to be ramping up.”
Weaker domestic returns have seen the proportion of the fund invested locally decline, despite the NZSF’s dollar exposure increasing.
The scale of the fund – roughly the same level of the entire NZX50 market capitalisation – has also led to investigating larger off-market opportunities.
“We’re always looking to invest domestically. We have about 11% of the fund today, $10 billion worth, in New Zealand. We think our NZD exposure will continue to grow. But because the fund has been so successful – it’s grown at 10%, the actual percentage of funds invested in New Zealand has been declining,” Townsend said.
She cited a proposed offshore windfarm with Copenhagen Infrastructure Partners as an example of the sorts of big-ticket projects that could soak up more of the fund locally.
While that project is – three years after being announced – still in the planning stages, Townsend said the long-term horizon of the NZSF made such long lead times viable.
“That’s the sort of model that we prefer. We are actually an infrastructure investor, not a developer. Our preference is to sit alongside a high-quality partner with the opportunity to be involved from early design right through to construction and operation,” she said.
“Some of the obviously better investments will be large-scale opportunities in infrastructure and real estate.”
Townsend said the alpha returns above its reference portfolio were vindication for the active investment strategy and meant the fund was $20b larger than if it had been operated on a passive basis.
“However, we must also recognise that much of the fund’s success is due to the exceptionally strong performance of global markets over the past 20 years – despite two once-in-a-generation crises in the Global Financial Crisis and Covid-19,” she said.
Matt Nippert is an Auckland-based investigations reporter covering the intersection of politics and business. He has won more than a dozen awards for his journalism – including twice being named Reporter of the Year – and joined the Herald in 2014 after having spent the decade prior reporting from business newspapers and national magazines.