NZ Super CEO aims to retain status as "best performing SWF"

Key Points

Since taking over the leadership of the New Zealand Super Fund in April 2024, CEO of the Guardians of New Zealand Superannuation (the Guardians) Jo Townsend has sought to refine the fund’s investment capability, to ensure, as she puts it, “that it remains the best performing sovereign wealth fund in the world”.

Results announced in September have done nothing to dent that reputation, with its global equity exposures underpinning a NZ$9.3 billion ($5.34 billion) asset growth for the year to the end of June 2026. Nonetheless, the fund is now predicting lower returns, and, as part of its five-year reference portfolio review, the board has approved a reduction of the active risk budget from 4% to 3%.

The more significant factor in this decision is the equity risk premium over the next 20 years, Townsend told AsianInvestor.

“Market capital assumptions are that we expect 8% per annum from equities over a 20-year time horizon. If you just look at US equities, for example, they have been delivering 20% for the last couple of years, and they’ve been exceeding the 8% average for a number of years, and we just do not think that is sustainable," she said. “That is the basis on which we’ve actually lowered our forward-looking return from 7.8% to 7.2%.”

Those numbers are for reference only, since over the last 20 years, NZ Super has significantly beaten that target, generating NZ$22 billion over and above its passive benchmark. 

The fund has been steadily growing the proportion of assets managed internally in recent years, as the organisation has matured and increased in size. But Townsend said this is not a process that will necessarily continue.

“Only where it makes sense. Part of the discipline we need to have is we should only be internalising our asset management where we have some sort of competitive advantage. There are an awful lot of managers that have more resources and capability, where we would just not be able to compete. We might be able to do it at a lower cost, but we should concentrate on getting a better cost-adjusted return.”

ALLOCATION STRATEGY

As return expectations from private asset investments are getting compressed in recent times, some asset owners have been scaling back their exposure to private equity. Townsend said NZ Super is not likely to follow suit.

“We don’t have a huge amount of private equity in the portfolio, probably about 5%. We are very particular as to the managers we use. If the team finds a manager they think can continue to deploy capital and make good returns, that wouldn’t cause us to stop deploying to private equity just because it’s a trend in the market.”

Since Townsend’s arrival as CEO, the fund has restructured on various fronts, including investment, technology and people. The leadership team is seven-strong, and the average tenure is 10 years.

“The changes we made were all about making sure we have the right structure in place to handle expected growth,” said Townsend. “One of the early things I did [in 2024] was to move the CIO to a co-CIO model, with Brad Dunstan and Will Goodwin in those roles. Between the two of them, they combine to implement our total portfolio approach.”

Among the fund's most recent appointments are Michael McNee, expected to start as head of portfolio completion on October 19, Sam Brodie as head of strategic tilting and Alex Bacchus as head of asset allocation.

TECH AND ESG CHALLENGES

The fund has also just completed a multi-year programme to migrate a lot of its data from legacy systems, “foundational for everything" related to tech and AI. 

“There isn’t a meeting I go to now that doesn’t talk about AI and how we improve our capability and productivity with regards to AI. We are looking at the way we can re-engineer some of our cross-team processes. None of this stuff is easy, but from discussions I have had with people in similar positions [at other sovereign funds], I think we’re well-placed. It is a rapidly changing and complex area.”

NZ Super has always prided itself on being a responsible investor, so Townsend concedes it was a surprise when the NZ High Court found a tangible lowering of the fund’s fiduciary rigour.

In a decision published on May 16, Justice Mount said parts of the Guardians’ Sustainable Investment Framework were “materially less clear and specific than the previous iterations” and “framed in such general terms as to provide no practical benchmark for those applying them in relation to alleged breaches of human rights standards.” 

Townsend said: “I think it’s fair to say we weren’t necessarily expecting the outcome, but as you’ll be aware, we didn’t challenge the ruling.

“The thing about challenging a judicial review like that is that you don’t know what the outcome of the challenge might be. Management made a recommendation to the board that we shouldn’t challenge, on the basis that we believe we would be able to rewrite the policy in a manner that was anticipated, so that’s what we set about doing."

The official statement of the revised policy confirmed that “Human rights considerations remain integral to the Guardians' sustainable investment policy. Our policy documents now explicitly record our long-standing position that human rights is a key ESG issue for us.”

Having completed the multiple strategic components of the reference portfolio review this year, the fund expects to publish a white paper on it, but not for a while. “We won't be talking about it until any unwinding of positions is complete,” said Townsend.