In New Zealand, we focus on the following opportunities to add value through active investment: listed equities; direct investment; expansion capital; infrastructure; and rural land.
Listed equities
Around 5% of the Fund's Reference Portfolio (and more than $1 billion of the actual Fund), is invested in the New Zealand sharemarket. This money is managed by external investment managers: Devon Funds Management and Mint Asset Management, along with an internal mandate run by the Guardians’ team of in-house investment professionals.
We believe New Zealand listed equity market, while small in global terms, has some characteristics that make it conducive to generating returns from active management.
We also have a high degree of confidence that the Fund is well positioned to achieve premium returns compared to other market participants with shorter timeframes, greater cash flow requirements and less tolerance for volatility.
Infrastructure
We believe there is an opportunity to earn sustainable returns from infrastructure. To date, our infrastructure investment activity in New Zealand has included an investment in a new housing development at Hobsonville Point in Auckland, as well as a portfolio of local hotels.
A number of procurement models have been used globally to develop, deliver and operate major infrastructure projects. The table below compares the principal models, of which the Public-Public Investment (PPI) model is favoured by the Guardians. The proposed PPI model is a partnership between a public investor, such as a sovereign wealth fund, and the Government as long-term, aligned co-investors and owners.
| Government Procurement Model | Public-Public Investment (PPI) Model | Public-Private Partnership (PPP) Model | |
| Model Definition | Government will conduct a tender process for completion of the construction and/or design. The Government retains the whole-of-like asset risk and payment is often fixed or lump sum. | Public investor and Government form a partnership and take an equity interest in the project. The public investor assumes end-to-end accountability for the project (from design through to operation and long-term ownership) and procures best private sector delivery partners for each work package. | Typically, Government will appoint a private consortium as responsible for the full delivery of services including operating, maintenance, construction, management etc. The consortium is responsible for all capital investment. |
Investment Hub
The Fund's Investment Hub was initiated in 2016 to create new direct investment opportunities of scale in the New Zealand market that would otherwise be unachievable (i.e. we think there is a market failure that NZ Super Fund can resolve).
The project aims to leverage our unique institutional knowledge and networks, return profile, certainty around liquidity and long-term investment horizon to:
- Take better advantage of value gaps in illiquid and unlisted markets to reap returns not otherwise accessible;
- Take better advantage of value gaps in illiquid and unlisted markets to reap returns not otherwise accessible;
- Aggregate and rationalise to provide economies of scope and scale;
- Lower the cost of providing bulk commodities, pushing more products up the value chain or owning more of the value chain;
- Rectify capability and technology gaps caused by New Zealand's size and location constraints;
- Create long-term value through sustainability and building brand stories; and
- Establish lasting partnerships with like-minded peers, including ACC, other Sovereign Wealth Funds, and iwi.
Expansion capital
Through external investment managers Direct Capital, Pioneer Capital, Movac, Pencarrow Private Equity and Waterman Capital, the Fund invests in a number of small, high-growth New Zealand companies.
There is a significant pool of smaller high-growth companies in New Zealand that we believe are constrained by a shortage of long-term equity and a lack of access to skilled investment management. Additionally, as stakes in private companies can be illiquid (difficult to sell quickly), they are not suitable for all investors, but are expected to deliver a premium return over time. These dynamics create opportunities for long-term investors like the Fund.
What sort of investments are a good fit?
- Enterprise value of NZ$15-50 million
- Credible growth plan - typically >20% compound annual revenue growth
- Require capital to expand through strategic acquisition, technology upgrades, or market expansion
- Defensible intellectual property, ongoing profitability growth and positive cash flow
- Opportunity to add operational value
- Sound governance
- Genuine investment, liquidity opportunities over a three-to-seven-year timeframe through Initial Public Offering, trade sale or recapitalisation.
Rural land
We have a portfolio of New Zealand farms under management by FarmRight. Rural land is a relatively under-developed asset class delivering a range of investment exposures. The sector is difficult to access passively and we see strong scope for adding value through active management of investments in both New Zealand and other major food-producing regions. We target investment opportunities in rural land of suitable scale or capable of being aggregated to achieve scale; where the vendors are capital constrained and in areas with climatic conditions suitable for high yields.