Forest ‘value-add’ buoys NZ Super returns

Kaingaroa Timberlands, NZ Super’s largest single asset, helped it achieve a double-digit return in 2016-17. Does that mean the sovereign fund is in an acquisitive mood again?

New Zealand’s sovereign wealth fund has finished its fiscal year 2017 up NZ$5 billion ($3.6 billion; €3.1 billion) to achieve one of its best annual performances to date.

Its “active investment” strategies, which include timber and agriculture, added NZ$1.3 billion over the fund’s passive benchmark in the 12 months ending June 30.

A number of factors contributed to NZ Super achieving a 20.7 percent annual return. The key reasons, according to NZ Super chair Catherine Savage, included the fund’s tilting program – implemented by NZ Super’s investment manager, the Guardians of New Zealand Superannuation Fund – which adjusts the fund’s exposure to different asset classes, as well as the fund’s significant investment in North Island forestry business Kaingaroa Timberlands.

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NZ Super had already cited the Kaingaroa forest as “the most notable value-add” investment in its latest annual report, which covers 2015-16.

The fund initially invested in the asset in 2006, acquiring a minority stake from the Harvard Management Company, Harvard University’s endowment, for approximately NZ$300 million. Since then, NZ Super has increased its stake to 42 percent. It owns the business alongside Canadian pension PSP Investments, which owns 56 percent.

Located in the central area of New Zealand’s North Island, Kaingaroa covers about 170,000 hectares of land. It is NZ Super’s largest single investment. The bulk of its timber is made up of Radiata Pine, with a small quantity of Douglas Fir.

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Timber represents 5.7 percent of NZ Super’s overall portfolio, which stood at NZ$35 billion as of June 30.

In addition to the direct investment in Kaingaroa, NZ Super has timber exposures managed by Global Forest Partners and Hancock Timber Resources Group in New Zealand, Australia, Latin America, the US and Asia, a spokeswoman for the fund told Agri Investor.

Asked whether the fund was planning to expand its timber portfolio in the near future, Neil Woods, NZ Super’s portfolio manager for timber and agriculture, told Agri Investor earlier this year that: “We’re happy with what we’ve got and there’s a lot of money chasing timber around, particularly in Australasia from US pension funds and managers. So, we don’t see a lot of buying opportunities at the moment.”

That position remains unchanged, according to NZ Super’s spokeswoman.