NZ Super adopts sustainable growth focus for equities
New Zealand Super has a new investment focus within its overall approach to sustainability, according to the fund’s acting chief investment officer, Alex Bacchus.
The investment team is now specifically targeting sustainable growth transition opportunities in the equity space.
“Equities are a big piece of our investment framework, and we already have other sustainable clean energy-related investments, for example. But this is the first time we have added one in the growth equity space,” Bacchus told AsianInvestor.
NZ Super
The growing number of unicorn companies in areas such as clean tech is something NZ Super is keen to tap into, with this new growth equity focus.
“All our investment processes include a sustainable investment lens, and we have a number of investments in sustainable energy infrastructure that are primarily climate-related.
"The difference with this new sustainable transition investment category is that we are targeting investments that are not primarily climate-focussed.
“This is a space where interesting scientific developments are being made and brought to market that could have real impact,” said Bacchus.
FUND ALLOCATION
NZ Super’s first investments in this category include a fund with US private equity firm Ara Partners that contains climate and non-climate sustainable transition-focused investments. These include industrial and manufacturing sectors; chemicals; materials; energy efficiency and green fuels; and food and agriculture.
“Alongside this, we also have a specific investment in a bio-packaging manufacturer, developing alternatives for plastic packaging and alternatives for single-use plastic products,” said Bacchus.
Sustainability is an overlay for all of the fund’s allocations, including infrastructure assets. Bacchus notes that sustainable investing “can work well within infrastructure, and we have made a number of infrastructure investments that have good sustainable characteristics, including solar and wind generation.”
At the moment, the bulk of its investments in infrastructure are offshore, but Bacchus said a lot of the current activity, in terms of new opportunities, is domestically focused.
Australia’s Future Fund also recently shifted its infra focus to emphasise domestic allocations, making its first direct investment in an Australian toll road. Ben Samild, the fund’s chief investment officer, said this was in line with a strategy to seek more Australian dollar exposures.
Consistent with the fund’s total portfolio approach, anything NZ Super does in infrastructure has to stack up against other investments it could make.
This year, the fund increased its capital commitment to Galileo, a pan-European renewable energy developer, owner, and operator, to support the business as it enters the next stage of its growth.
Galileo’s strategy is similar to — but earlier stage than — Longroad, a renewable energy platform in the US. The NZ Super Fund owns 20% of Galileo and fellow investors include Infratil, Morrison’s Growth Infrastructure Fund, and the Commonwealth Superannuation Corporation.
In June, NZ Super acquired an additional 3.7% stake in Euroclear, having taken an initial 4.99% holding in June 2023. This follow-up investment makes it Euroclear’s fourth largest individual shareholder.
CHANGING PLACES
In April of this year, Jo Townsend, previously CEO of South Australia’s Funds SA, took on the role of CEO at NZ Super, following the departure of Matt Whineray.
NZ Super
With its former CIO, Stephen Gilmore, having also taken up a new role as CIO at the $500-billion US pension fund CalPERS, the Guardians of New Zealand Super appointed Bacchus as acting CIO while an external search is carried out, which is expected to conclude by the end of this year.
Bacchus would not be drawn on whether he wants the job on a permanent basis, saying only: “We’ll wait and see on that.”
Bacchus’s involvement in structured credit derivatives at Merrill Lynch prior to the GFC was certainly instructive of his current style, but he doesn’t anticipate much will change under his leadership.
“Stephen left the fund in a good place and I will continue on a broadly similar path. The fund is performing well and there’s no clear need for any abrupt changes."
Active investments have been a significant alpha generator over the last few years. As head of strategic tilting, Bacchus and his team have contributed much to the fund’s consistent outperformance of the benchmark reference portfolio.
As Bacchus describes it: “We’re taking a long-term valuation-based approach, and taking a view on where things might play out. That’s something we’ve been doing at the total fund level as well.”
“We’ve also got a lot of structures that have been in place for some time and have worked well. We’ve got a total portfolio approach that has served the fund well for over a decade.
"We’ve got a reference portfolio that I think is a good yardstick for our performance, in terms of how we evaluate potential investments against the wider universe.”
The reference portfolio is reviewed every five years; the next review is due in mid-2026.
The NZ Super Fund returned 16.85% over the 12 months to end-May, but in a stakeholder update last week, Townsend said that “we face a number of challenges.”
"Top of mind is how we will scale and optimise the organisation, given the projected doubling in fund size over the next 10-12 years. We want to do this without losing the culture and organisational character that has made us successful," she said.