NZ Super: Hunting for bigger direct deals

About a year ago, The New Zealand Superannuation Fund began building its Investment Hub, whose objective is to create direct investment opportunities in the New Zealand market.

The initiative came on the back of a report produced by the country’s Productivity Commission, which found that New Zealand under-performed global peers in many sectors. Using its position as sovereign wealth fund, NZ Super saw an opportunity to bring together industry participants.

“With that, we started resourcing up and we hired a senior advisor to run the hub strategy,” head of direct investments Will Goodwin told Agri Investor, referring to Tama Potaka, who is Maōri and was previously with the investment arm of the Tainui tribe in Central North Island.

“We then built a team around him, including members from our direct investment team, who in addition to working on direct investments will have a wider role in executing on these hub investments.”

The hub investments will be more about spotting attractive sectors than singling out individual companies. “As a result, you’re playing at a much higher level and they’re going to be a lot slower burn and will require multiple parties to become aligned to what you’re trying to achieve,” Goodwin explained.

“So, we recognize this is not a flash in the pan, big-bang style of investment. We have to spend a lot of time engaging and influencing various stakeholders to ultimately find a way in which we can deploy capital.”Because the hub investments will largely be made at the sector level, they will also require larger checks than the NZ$100 million ($68.4 million; €58.8 million) NZ Super has set as a minimum for its direct investments.

That means the SWF will need to seek partnerships. While Goodwin could not yet disclose with whom NZ Super is teaming up, he did say that the team was “actively establishing partnerships in target sectors.”

One of these areas of focus, in addition to agriculture and infrastructure, is co-investing alongside Maōri.

“We have been instrumental in establishing a Maōri-only private equity fund,” Goodwin said. “We’re not going to be invested in it, but we have established it for several reasons. The first is that it’s a good thing to do and will help improve New Zealand’s private capital markets. The second is that in helping to establish this fund, hopefully we’re going to get reciprocal deal flow out of the Maōri fund.”

“The third is that our legislation restricts us from owning more than 50 percent of any business – we always have to partner – and as we get bigger we need to keep finding more and more partners who are highly aligned with our investment style. Domestically, Maōri are probably the best partner we could ask for. As the fund gets bigger, we hope that within a few years’ time it will be a strong investment partner for NZ Super.”

‘Agri is the opposite of traditional PE’

The Maōri fund is in the process of holding a first close of around NZ$80 million, Goodwin said, with the aim of growing it to hundreds of millions of dollars in the coming years.

The fund is more likely to be closed-end than open-ended vehicle, Goodwin noted. “But Maōri have a different investment horizon,” he explained. “So, when we say closed-end it may be a term of 15 or 20 years. And the investment style of Maōri is inter-generational and hence they do not sell assets, but can continue extending their holding period for good assets. This won’t be run like a traditional PE fund.”

Agriculture is also an asset class that differs significantly from private equity, Goodwin pointed out.

“We see the value in agriculture is in the hold and the improvement in operations, which is completely the opposite of a traditional private equity deal where a lot of the value is generated in the buying and the selling,” he said.

Agriculture currently accounts for approximately one percent of NZ Super’s total portfolio, which finished fiscal year 2017 at NZ$35 billion, up 14.3 percent compared to the previous year. A major contributor to the NZ$5 billion increase was Kaingaroa forest, the fund’s largest single investment and part of its timber portfolio, which represents 6 percent of the NZ$35 billion total.

This is the second installment of a two-part interview with Will Goodwin, NZ Super’s head of direct investments. You can read the first part by clicking here