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Exclusive: NZ Super Fund considering first investments in US agriculture

New Zealand’s sovereign wealth fund is aiming to increase its ag weighting to 3% of its assets and is increasingly looking offshore to achieve this, following its first move into Australia in 2017.

New Zealand Superannuation Fund is considering making its first investments in US agriculture and expanding its Australian ag footprint, as it continues to target a 3 percent strategic allocation to the asset class.

NZ Super Fund timber and rural portfolios manager Neil Woods told Agri Investor the US market was the fund’s “next target” while it continues to consolidate its position in Australia.

“We’re just starting to think about where next [for agricultural investments] and the US is somewhere we’re considering doing a bit more work. We’ve had a couple of exploratory visits there – it’s early days, but that’s our next target,” he said.

NZ Super Fund made its first offshore ag investment in late 2017 when it partnered with the owners of the Palgrove beef stud in Queensland to invest NZ$96 million ($63 million; €55 million) in the business, according to figures from its 2018 Annual Report. The capital will be used to add beef finishing capabilities to the operation.

“We’re looking to expand that platform as opportunities arise, to facilitate a higher level of beef production,” Woods said.

He said the fund is actively exploring other opportunities in Australia, citing permanent crops, citrus and wool as the most likely sectors to be targeted.

“It’s very early days on where we might target next [in Australia]. But those sectors are on the radar as ones we should drill down into more, and find out whether there are opportunities there and whether the economics actually stack up,” he said.

Woods added that he hoped to continue to make direct investments on a partnership model like that made in Palgrove, but he did not rule out the possibility of using the same model it deploys in New Zealand, where it uses an external manager, FarmRight, to manage the operations of its rural investments totaling NZ$372 million. Woods said that NZ Super Fund retains discretion on what to buy and sell, and when.

Foreign Investment Review Board rules had made it “more difficult” to do off-market transactions in Australia, Woods said, with rules around advertizing properties for a minimum period adding complexity to the process. “The FIRB process is fair and reasonable, and it seems to be pretty transparent, but it’s altered how and what we can target,” he said.

The fund owns a portfolio of 22 dairy farms in New Zealand, two beef farms in Southland and Hawke’s Bay, and a vineyard in the Marlborough wine region. The latter three assets were all acquired in the past year, with Woods saying the beef farms in particular offered synergies with its dairy platform.

“We can, for example, use the young calves that would ordinarily be ‘waste’ products, if you like, from the dairy process – we can grow those on and create beef animals out of those, and sell them,” he said.

“From a risk-management perspective, we think society’s getting tougher on those sorts of perception issues, so we’re not now selling a bull calf at four days old, we’re actually growing it through. It obviously ends up in the same place, there’s a bit of risk mitigation there. It also gives us the opportunity to make some margin out of it, and internalize a bit more our whole system of stock movement.”

Overall, NZ Super Fund is targeting a 3 percent SAA for agriculture, which currently sits at around 1 percent. Its assets totaled NZ$39.37 billion as at June 30, 2018.

The fund achieved a 12.43 percent return for the year ending June 30, with chief executive Matt Whineray highlighting the strong performance of timber investments as a significant contributor to that.

NZ Super Fund increased its timber weighting to 6 percent in the 12 months to June 30, reaching its target allocation. Woods confirmed to Agri Investor there was “not a lot of focus” on new timber investment now as a result.