NZ Super Fund finding it a 'real challenge' to find overseas agriculture assets to invest in as 'wall of money' chases the 'new black'

By Gareth Vaughan

The New Zealand Superannuation Fund, which launched a rural land strategy last year and bought its first New Zealand farm in February, is finding it a "real challenge" to secure suitable agricultural investments overseas with its chief executive saying rural assets are the "new black" and being pursued globally by "a wall of money."

NZ Super Fund CEO Adrian Orr told interest.co.nz in a Double Shot interview staff had "racked up the air points" searching for an overseas manager, or managers, for its rural land strategy and farms or other rural asserts to buy into.

"Agriculture, farm land, rural, anything to do with rainfall, grass growth, seems to be the new black when it comes to institutional investors," Orr said.

"So there is this wall of money out there looking to get access to this asset class," he added.

"The access point though is incredibly difficult. It changes across all countries, by farm type, by ownership structure, highly regulated about whether foreigners can own, all of the same types of things that happen in this country."

"So we’ve had a real challenge in nailing down assets, primarily assets, that we are comfortable owning that we think we are going to be rewarded for the risks that are involved in making those investments."

3% of fund's NZ$19 billion earmarked for rural land strategy

The Super Fund's rural land strategy, outlined by Orr in this previous Double Shot interview last year, sets out that it can invest up to 3% of the fund in rural land. The Super Fund, established by the previous Labour-led government to help cover future retirement costs, stood at NZ$19.03 billion at June 30, meaning 3% is about NZ$570 million.

Crop farms in sights

After appointing South Island-based dairy farming management and consultancy company FarmRight as an investment manager, the Super Fund announced the purchase of its first farm, a dairy farm in West Otago, in February. It now has nine New Zealand dairy farms. In February Super Fund general manager for investments Matt Whineray, said the Super Fund was also looking to appoint managers to lead a push into investment in crop farms overseas.

But it's still yet to make its first offshore rural land investment. Orr said in terms of implementing its strategy overseas, the Super Fund was now "about 80% scoped, 0% invested."

"So we’ve got a good feel for who knows the game, we’ve got a good feel for what the assets are that are available, (but) we aren’t that confident yet to be putting money on the table," said Orr.

"We’ll only invest when we think it’s worth it. Our single biggest challenge always is to be in a position where we can be opportune. It (opportune) is one of those words that’s over used but it’s critically important to us."

He said the Super Fund was indifferent in terms of the rural asset class it buys into and in terms of what part of the world it invests in.

"What we want to have a clear understanding of is what are the risks we’re bringing on board, how are they are going to be rewarded, is it worthwhile taking those risks on board, and once we do does it improve the performance of the portfolio as a whole?"

"The types of assets that we would be looking for are ones which are significant in size, where we can make a difference if we are directly investing in these things, and really come in a rarefied atmosphere that not many other people can get access to this investment," Orr added. "That might be because people need liquidity and we don’t, or that it’s a difficult market to get into, or they’re less patient than we are."

25% annual return & lots of tyre kicking

Orr was speaking after the Super Fund released its performance figures for the year to June, which showed a 25.05% unaudited annual return after fees but before taxes, with the latter considered as a return to the Crown.

Meanwhile, following the series of devastating earthquakes in Christchurch over the past year, Orr said Super Fund staff had been visiting the Canterbury region and being "very pro active" looking in for investment opportunities there.

Asked if the Super Fund had found anything in Christchurch to invest in Orr said: "We’ve kicked a lot of tyres to date but I won’t comment on specific investments. But without doubt I can safely say the shingle is out. They know the 0800 number and we’re ready to chat whenever as opportunities arise."

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