NZ Super’s Jo Townsend Shares Stakeholder Update

Three months into her role as CEO of the New Zealand Superannuation Fund, Jo Townsend shared a stakeholder update, highlighting the fund’s progress and achievements this year.

In the 12-month period ending May 31, the fund achieved a 16.85% return. Townsend noted that the fund, which has assets of NZ$77.77 billion ($46.25 billion) is projected to almost double over the next 10 years, raising challenges and opportunities. Top of mind, Townsend wrote, is how the fund can scale and optimize, while retaining culture and organizational character.

“I’m conscious that the world is full of uncertainties and that the investment landscape is ever-changing,” Townsend wrote. “As the world gets more and more complicated, an ability to keep things simple, and remain nimble, will stand us in good stead.”

Townsend wrote the economy could appear choppy for the rest of the year. While there is a global decline in inflation and slowing global growth, Townsend wrote geopolitical issues, including global elections and ongoing conflicts are things to watch.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

In her update, Townsend announced that NZ Super in June added to its holding in European post-trade services company Euroclear, adding an additional 3.7% stake in the company to the fund’s initial 4.99% holding. The follow-on investment makes the fund the company’s fourth largest individual shareholder and makes Euroclear one of the largest single holdings in the NZ Super Fund.

Townsend also noted that a law, passed in June, will enable NZ Super to take controlling interests in other entities, something for which the fund has sought authority for several years.

“This change will not fundamentally change the way we invest,” Townsend wrote. “It will, however, contribute to improved investment management, open up a larger investment opportunity set, and increase our ability to drive positive environmental, social and governance outcomes. Alongside that, it removes a constraint on our ability to respond to domestic investment opportunities.”

The fund is continuing its search for a new CIO, its previous investment chief, Stephen Gilmore, became the CIO of the California Public Employees’ Retirement System in early July. In the interim, Alex Bacchus, who was head of strategic tilting at the super, is stepping in.

Related Stories:

Jo Townsend Appointed CEO of New Zealand Super Fund

Alex Bacchus Appointed Acting CIO of NZ Super

NZ Super Begins Hiring Process for Next CIO

Tags: Alex Bacchus, Jo Townsend, NZ Super, NZ Superannuation, Stephen Gilmore

The burgeoning asset class of private credit saw its default rate rise in this year’s second quarter to its highest level since the 2020 pandemic year, one which featured a recession.

This year’s second period had a 2.71% default rate, the third consecutive quarter that default levels have risen, according to a study by Proskauer Rose LLP, the large international law firm that specializes in finance.

In 2020’s second quarter, defaults hit a decade high of 8.2%. Then, as vaccines became available and the short recession faded, the rate tumbled to a low of 1.0% in 2021’s final quarter.

In 2024’s second quarter, the magnitude of defaults was similar regardless of company profitability, gauged by Proskauer on earnings before interest, taxes, depreciation and amortization: From the smallest, less than $25 million (2.6% in the second quarter), to the largest, greater than $50 million (2.8%).

For more stories like this, sign up for the CIO Alert newsletter. 

The latest private debt default reading hardly means ongoing deterioration is unavoidable for the asset class, the Proskauer report argued. Indeed, Steve Boyko, a partner in Proskauer’s private credit group and co-chair of the firm’s corporate department, characterized the rising default rate as a warning. Defaults “are not necessarily indicative of distress; instead, they provide managers with the ability to take steps to reduce their risk, ” he said in a statement.

The popularity of private credit has grown quickly, propelled by its lush yields, around 8.2% for the 12 months ending in 3Q 2023. The asset class attracted $1.75 trillion globally (mostly in the U.S.) as of mid-2023, tripling its size over 10 years, a PitchBook report indicated.

Some problems with private debt investments, which are made mostly to small businesses, have come to light recently, however. Example: Swiss bank Julius Baer announced in February it would end its private debt business after reporting net losses of $679 million due to its exposure to troubled Austrian commercial real estate owner Signa.

Weaknesses in the private lending space are less pronounced than those of syndicated loans (mostly bank lending to highly indebted companies, known as leveraged loans, which are then often consolidated into non-publicly traded pools) and junk bonds. For the 12 months ending in May, syndicated loans and high-yield debt had a combined default rate of 4.33%, per Fitch Ratings. The average leveraged loan is almost twice as big as a loan in the private credit sector—$80 million versus $47 million, per Fitch.

The big question about private credit, in the view of Jamie Dimon, the JPMorgan Chase CEO, is how it will fare when a recession arrives. He has noted that, as a relatively new asset class, it has not weathered a full economic cycle and offers little history to guide investors.

“Frequently, the weaknesses of new products, in this case private credit loans, may only be seen and exposed in bad markets, which private credit loans have not yet faced,” he wrote in the bank’s latest annual report, released in April.