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In its annual report, the fund included modelling of what would happen to the almost-$40 billion in the fund if another global financial crisis struck.
It showed more than $22 billion would be lost but it would recover within two years.
Chief executive Matt Whineray said it was another way to make clear the risk profile of the fund’s investments, in a way that had more impact.
The fund has delivered many years of higher-than-expected returns, at more than 10 per cent per year on an annualised basis.
But it has routinely warned that they should not be expected to last, because the fund is a long-term investment with heavy exposure to riskier assets.
Whineray said New Zealanders had become used to stable markets. Unease this week about falling share markets showed many were not prepared for what a true downturn might feel like.
“We had that decent bit of volatility right at the end of January and suddenly everyone was saying ‘the sky is falling’, then it’s back to relative calm again… Now we’ve seen a 3 per cent fall in US markets and the headline is ‘bloodbath’. It’s not a bloodbath, someone’s dropped their latte. It’s far from a bloodbath at this point.”
Whineray said the fund’s portfolio meant it should expect volatility. “The fact there hasn’t been a lot doesn’t mean it’s gone away.”
Any investor that did not understand the risks they were exposed to, or how their investments might perform, risked being unable to stick to their long-term strategy, he said.
This is an important message for the NZ Super Fund because it needs to retain government confidence. Contributions only resumed this year after a decade on hold.
Whineray said it was important for all investors to distinguish between volatility and risk. “Often they get conflated.”
“The risk is not that the fund will be exposed to volatility because we know that will happen. The risk is that we don’t have the discipline resources or capability to hold our nerve and continue to maintain our risk risk profile through the market downturn.”
Whineray said he was not predicting another global financial crisis with the exercise - nor suggesting that any future crisis might result in similar returns. The recovery from the GFC was noticeably swift, and such a recovery might not be replicated after the next crisis.
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"If you repeat for long enough that ' the market is going to crash'...eventually you will be right!" For years now, many of us have had the sense to use as a 'screen-saver' USDEBTCLOCK.ORG, and we allow ourselves to be reminded of the word "debt".
There are other 'trigger' words such as BUBBLE. For those who subscribed to useful info, many would have taken heed of warnings about debt & bubbles, many who did not have access to such info, now have portfolios (including their homes) with rather diminished values.
The GFC of a decade back saw the big USA banks baled out. This time, the big five have only 'derivatives' as their main asset-backing.
The next one on the horizon will not be a recession...it is going to be much more serious than that, a 'depression.!" There.....you have it again, in print!
No, I am not one of those scaremongers who are known more for their doom & Gloom predictions (without any substance or backing) than their useful info.
I have always preferred to put my info into print,(as I did earlier this year) so no one has the opportunity to say I just said it "after the horse had bolted!"
Finally, I need to ask if the CEO of the NZ Super fund had placed any 'protective' measures in place prior to the "latte drop" of last week?
Surely it can help better to make money by not losing it in the first place?
If you lose 10% of your dollar...and then make 10% on the remaining balance, you do not have your original dollar back.
The last decade has seen some quite 'obscene' returns enjoyed by many, however, may i suggest the "party" is not set to be so enjoyable during the next decade or so, unless you take an active 'paradigm shift?'