New Zealand’s best wealth fund says the best is behind it

The New Zealand Superannuation Fund has maintained its position as the world’s best-performing sovereign wealth fund, according to a press release citing rankings compiled by international sovereign wealth fund experts Global SWF; its managers think that run is about to get a lot harder.

The fund has had an average annual return of 9.93% after costs for more than 20 years, topping Global SWF’s rankings and nearly doubling the 6.2% average posted by its peers, noted the release. It added that only Sweden’s AP7 ranked higher overall. The New Zealand fund led all sovereign wealth funds over five years and finished second over 10 years.

However, the fund’s investment manager Guardians of New Zealand Superannuation is warning that the conditions that produced those numbers are fading.

“A large proportion of our returns over the past 20 years are a result of the continuing outperformance of world equity markets — in particular those in the United States,” said Brad Dunstan, co-chief investment officer at the Guardians, in the release. “One of our key investment beliefs is that prices tend to revert to fair value over time. Of late, we have seen prices across a range of asset classes surge: at some point, those markets will rebalance.”

The fund is equity-heavy, which supercharged returns during the long bull run in global stocks. The Guardians believe global equities are currently overvalued and higher inflation will further compress returns in the near term.

The logic is straightforward: assets that are expensive today have less room to run tomorrow.

Dunstan said the fund would lean harder into risk and liquidity management while continuing to look for opportunities to add value — a more cautious posture from a fund that has rarely needed to play defense.

“It is hard to see the high absolute numbers of the past few years continuing,” he added.

The fund was established to help New Zealand pre-fund the rising cost of universal pension payments as its population ages. For two decades, it has delivered. “Overall, we remain confident the fund will continue to generate strong returns in relative terms, but it is hard to see the high absolute numbers of the past few years continuing,” said Dunstan.