The NZ Super Fund's Matt Whineray talks about how the fund plans to invest more in New Zealand
New Zealand Superannuation Fund General Manager of Investments Matt Whineray explains in this Double Shot interview with Bernard Hickey how the fund plans to invest more in New Zealand assets.
This follows Finance Minister Bill English's directive to the fund in May last year to aim at investing up to 40% of the fund in New Zealand assets. Currently the fund has around 20-30% of its NZ$16 billion of funds in New Zealand, depending on whether cash holdings here are included. See more detail on what the fund invests in here.
Whineray said the fund already has investments in listed New Zealand companies including Auckland International Airport, Fletcher Building, Contact Energy and Sky City Entertainment, and in unlisted assets including the Kaingaroa Forest.
The fund now had four new strategies to increase its investments in New Zealand, he said.
"We're looking for spots where there is a capital shortage and there is an opportunity to get in there and generate better than market returns."
The first strategy was in 'Expansion Capital'. These are investments in established companies worth around NZ$20-50 million with positive cashflows that needed an extra NZ$5-15 million in expansion capital to keep growing.
"They've used up all their friends and family and bank credit supplies and they don't quite have the size to get to the listed markets, and you see that with some companies that go a little early," he said.
"It's a hard place to get into. The reason there's not a lot of institutional money in there is because there's not a lot of access points. It's what we think of as an empty room, which is one of the places we like to find."
The NZ Super Fund had appointed local private equity fund manager Waterman Capital to look for these expansion capital opportunites and would look for others. The fund had committed NZ$30 million to the Waterman Fund LP, which would look for companies worth up to NZ$50 million that needed capital for expansion locally, internationally or to manage ownership succession.
The fund could eventually have around 1% of the fund in this area, Whineray said.
The fund also looked to invest directly in five to seven large investments (over NZ$100 million) in domestic companies. The fund was not able to control the companies so would often partner with others to own these companies, Whineray said.
Greenstone Energy, which is a partnership between the fund and Lloyd Morrison's Infratil that bought Shell's service stations in New Zealand, was one such example of a large direct investment in a New Zealand company.
"That is the type of scale and type of structural transaction under this NZ Direct strategy where the types of investment vehicles might be what (Fund CEO) Adrian (Orr) calls the three Cs: Crown owned, collectively owned or cooperatively owned."
These investments could eventually make up around 5% to 10% of the fund.
The third strategy was around the area of small infrastructure investments in assets such as hospitals and schools, or helping local authorities build wastewater plants or conference centres.
The NZ Super Fund had invested with Morrison & Co's Public Infrastructure Partnership (PIP) Fund for these types of investments, although, ironically one of its first investments was in Australia.
The PIP fund announced earlier this month it would invest in the Melbourne Convention and Exhibition Centre Public Private Partnership (PPP). It is a candidate to invest in a national convention centre planned for New Zealand.
"They're (Australia) a little bit ahead of us in the development of those PPPs," he said.
"We;re encouraged by some progress on the PPP front from Wellington and the Government and the National Infrastructure Unit."
This area could eventually make up around 1% of the fund.
The final strategy was around rural investments globally, with ownership locally being part of that.
"That's where we'll look at farm ownership up to the farm gate," he said.
The fund could eventually have around 2%-3% in this area globally.
These four strategies could combine eventually to represent up to 8-10% of the fund.
Currently about 15% of the fund is invested in direct New Zealand stocks, property, bonds and timber.
Asked if it would be easier, less risky and cheaper for the fund to invest everything overseas, Whineray said the fund thought hard about any investments that were active rathr than passive.
"That's why we look at those spaces that we call 'empty rooms' or 'fertile fields' where we think there are opportunities for managers to get better than market returns and therefore improve the overall performance of the fund," Whineray said.
"At the levels I'm talking about we're not going to vastly change the risk profile of the fund, but we think there are those type of empty rooms where we can generate better than market returns and improve the overall performance."
After fees and before tax, the fund has returned 6.14% per year since its inception in September 2003, which is 0.18% above the returns from Treasury Bills (the risk free rate). The funds target is to produce returns of 250 basis points per year above the risk free rate over rolling 20 year periods. See more details on performance here.