The NZ$30 billion ($21.67 billion; €19.63 billion) New Zealand Superannuation Fund will allocate 3 percent of its overall funds to agriculture and timber over the next two to three years, timber and agriculture portfolio manager Neil Woods told Agri Investor.
“We have a target of bringing about 3 percent of the fund into agri investments. We have a bit under 1 percent of the fund invested in the area in New Zealand, so that leaves a balance of about NZ$700 million ($505 million; €457 million) to place in other investments,” he said, adding that the fund is in no rush to spend money as it will also have to divest in some areas to reach its target.
NZ Super owns a portfolio of dairy farms and a 42 percent stake in the NZ$1.4 billion Kaingaroa Timberlands. The fund could also acquire more dairy farms at home, where producers are struggling with low pricing, head of international direct investment Nigel Gormly told Agri Investor earlier this year.
Woods is now looking at beef and permanent crops in Australia to invest in over the next two years. He said that vineyards and permanent crops were of particular interest, because Australia can grow them at opposite times of the year to California, Australia’s biggest export competitor in the Asian market in the sector.
“We aren’t averse to row crops. It’s just that it’s hard to get really good data that you can do your due diligence on there and cropping seems quite volatile,” Woods said. “We don’t need a hugely diversified ag portfolio. What we are looking for is to invest in some parts of the ag sector that we can believe the story of and get involved in. Permanent crops play into the lives and health of populations in Asia.”
Woods said that the fund would target up and running permanent crop assets, but would seek bolt-on properties: “With ag, because yields are so low it is nice to buy some assets where you can apply your capital and get a lift or a development margin out of it.”
The fund has an average annual cash yield return expectation of around 6 to 7 percent, and will generally make agricultural and timber investments with a minimum tickets of NZ$100 million.
Woods is also both cautious and excited about beef opportunities in Australia, aware that pricing for assets has grown with beef profits over the last year.
“Pricing is something we are really concerned about in any area we invest in. We are not trying to pick the cycle per se but we tend to buy assets on the basis of long-term returns expectations,” he said, adding that the fund would avoid buying assets through auctions.
“We prefer to go on into the market just quietly and sift around and look at assets where you can buy and get that cash return on a modestly conservative long-term pricing,” he said, adding that family-run businesses looking for an investment partner were ideal.
The fund can invest in agricultural assets around the world. Woods said Australia was comparatively secure in terms of its legal and land title systems, but there is nothing to stop the fund looking elsewhere.
More widely, the fund is expecting lower fund returns amid a slower and more volatile investment environment. It expects to generate an average return of 8 to 9 percent per annum in the long term, compared with the 9.6 percent it has delivered since its inception in 2003.