NZ Super Fund chief executive Jo Townsend says the fund needs to stay ‘humble’ as some of its strong investment returns could be lost in a market correction

The New Zealand Superannuation Fund beat its benchmark and generated $5.5 billion for taxpayers with an 11.8% return on investment in the year ended June 2025. 

It’s another blockbuster result for the pension fund, which can boast of being the best performing sovereign wealth fund with average annual returns above 10% since 2003. 

However, its chief executive Jo Townsend is not boasting. She downplayed the fund’s performance in a press release, saying its strategies only played a part in the result.

“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”. 

Stockmarkets have been booming. The United States’ benchmark S&P 500 index has risen 94% in the past five years, with an annual growth rate of 14.2%. Its long-run average is 10%.

The NZ Super Fund has its own passive reference portfolio—80% stocks and 20% bonds—which it uses to assess its active strategies. Townsend said this portfolio had delivered 9.4% over the past five years, which was itself an “incredibly strong number”.

This wasn’t during a period of uninterrupted peace and prosperity, either. Markets have been undeterred by pandemics, inflation, recessions, invasions, elections, and trade wars.

“What that says is, despite all the seemingly crazy, increasing uncertainty in the world, markets aren’t necessarily reflecting that,” she said. “As investment managers, we're always humble enough to realise that markets can turn quite quickly.” 

‘Overpriced’ stocks

Townsend told Interest.co.nz she wanted to manage the expectation that the fund would deliver these big returns every year, when it was possible a downturn could be looming. 

The investment team had been reducing its exposure to “overpriced” US equities, relative to the reference portfolio, to manage this risk, but it wasn’t looking to cash out completely. 

“We don't come in every day thinking markets are going to fall by 20%, but we've got strategies that will come into play if markets do start falling.” 

NZ Super Fund has outperformed its reference portfolio by 1.6% over the past 20 years, creating almost $20 billion of added value. This has made taxpayers roughly $57 billion better off than if it had used the capital to pay down debt.

This year the fund paid a net $655 million into the Crown coffers for the first time, with its tax bill outgrowing the government’s annual contribution to the fund. Actual withdrawals from the fund to pay for pensions aren't expected to start until the 2030s.

Townsend said this long time horizon was one of the main reasons NZ Super Fund had outperformed other sovereign wealth funds — again, managing expectations for the future. 

She said it was “satisfying” to have the fund recognised internationally, but the better performance was largely due to the fund’s high tolerance during the market boom. 

Many other sovereign wealth funds have to hold a higher proportion of reliable, liquid assets to manage ongoing withdrawals. NZ Super Fund will also have to change its asset allocation in the future, once pension withdrawals reach a meaningful size.

Townsend said this was still decades away, allowing the fund to invest 80% (or more) of its capital in equities and other growth assets while building wealth to meet future liabilities.

But it also means the fund would likely have to absorb larger losses in a downturn, and potentially spend a period of time underperforming its more risk-averse peers.  

Betting on AI

It’s a gamble which has paid off handsomely so far, but Townsend warned it may not always be such smooth sailing.

“We just have to be humble enough to recognise that if markets got into a down-period, particularly a sustained down-period, we would not be delivering those strong returns,” she said. 

Some analysts do worry the US stock market is at risk of a painful correction. Speculation that artificial intelligence technology will boost earnings for technology has been driving a lot of the gains in stock prices. 

This has been compared to the early internet bubble in the early 2000s. Investors were right that the internet would be a big deal, they just hadn’t correctly identified who would benefit.

If these large language models don’t translate into big productivity gains and earnings growth for tech stocks, then investors are likely to face falling share prices in the future.

Tariffs in the US are another reason assets may be overvalued. Higher consumer prices are likely to mean lower levels of consumption overall, not to mention recent jobs data suggest the American economy may already be flirting with recession.

Even if the immediate shock of tariffs has been absorbed, a less efficient economy could result in underwhelming earnings growth in the future, making high stock valuations hard to justify. 

If a meaningful market downturn does emerge, don’t be surprised if the NZ Super Fund and other growth investors have to give back some of these record breaking returns.