Timber investment central to NZ Super Fund’s strong returns

New Zealand’s sovereign wealth fund has namechecked its 42% stake in Kaingaroa Timberlands as a strong performer in FY18.

NZ Super Fund, New Zealand’s sovereign wealth fund, has cited its timber investments as a strong contributor to its 12.43 percent return on the year to June 30.

NZ Super Fund increased its timber weighting to 6 percent over the last 12 months, compared with 5.6 percent the previous year, and also raised its exposure to rural farmland slightly from 0.9 percent of its portfolio to 1 percent. Its assets totaled NZ$39.37 billion ($26 billion; €22.4 billion) as at June 30.

In a performance update, NZ Super Fund chief executive Matt Whineray highlighted three factors as contributing to the strong returns: timber investments, primarily its 42 percent stake in Kaingaroa Timberlands; strategic tilting, in which the fund’s exposure to different asset classes is adjusted over time; and an internally managed credit mandate.

Kaingoroa Timberlands owns the Kaingoroa forest on New Zealand’s North Island and consists of crown forest licences, forestry rights and a small amount of freehold title.

KT is a partnership between NZ Super Fund, Canada’s Public Sector Pension Investment Board (which holds a 55.5 percent stake), and Kakano Investments (2.2 percent), a collective of six iwi that are also the owners the majority of the land KT is planted on. Iwi is the term for a Maori tribe or nation.

“These active investments (as with all of our active investment strategies) are designed to play out beyond annual cycles and are carefully chosen to take advantage of the fund’s endowments as an investor – our long-term horizon, known liquidity profile, sovereign status and operational independence,” Whineray said.

“Tilting, timber and our internal credit mandate have consistently added value to the fund over a number of years: pleasingly, the strong performances in 2017-18 are not one-offs.”

According to its most recent annual report from October 2017, NZ Super Fund also invests in two funds, Global Timber Investors 8 and 9, managed by Global Forest Partners. These funds grant it exposure to timberland in Australia, Brazil, Cambodia, Chile, Guatemala and Uruguay.

In addition, it partnered with GFP to purchase a share of Eucalyptus plantation assets in Western Australia and holds a small interest in a forest estate in the US owned by Hancock Timber Investment Group.

Its investment in rural farmland includes ownership of 22 dairy farms across New Zealand as well as other farm properties.

NZ Super Fund generated returns of 12.43 percent over the 12 months to June 2018, beating its passive reference portfolio market benchmark by 2.02 percent (worth approximately NZ$700 million). It also exceeded the average return on treasury bills, its other benchmark, by 10.71 percent (worth NZ$3.7 billion).

The fund’s actual return since inception in September 2003 has been 10.37 percent per year, compared with 8.88 percent in the reference portfolio and 4.06 percent from treasury bills.

New Zealand’s government contributed NZ$500 million to the fund in FY18 in a resumption of contributions after an eight-year suspension.

NZ Super had not responded to a request for further comment on the performance of Kaingoroa Timberlands and its agribusiness equity investments at the time of publication. Its annual report for 2018 will be tabled to New Zealand’s Parliament in October.