NZ Super buying infra in Europe and North America
The New Zealand Superannuation Fund (NZ Super), a sovereign wealth fund (SWF) with NZ$60 billion ($40.5 billion) in assets under management (AUM), is looking to ramp up its investments in infrastructure, following a new investment strategy approved in June.
Josie McVitty, senior advisor for infrastructure, who joined the fund in February and works across the fund’s direct and external investment teams, told AsianInvestor she was working to strengthen relationships with both managers and her peers at asset owners across the world to identify and partner on investments. These will be mainly value-add and greenfield investments - which have a higher risk return profile than the safest core and core-plus investments - related to the energy transition and digital infrastructure.
“We are now looking to build out relationships to help us access deal-flow in Europe and North America, then, in due course, Asia,” she said. While she is watching Asia with interest, she would not say when the fund would start to invest in the region.
She said a $3.75 billion toll road investment platform in Indonesia formed in May between Indonesia’s sovereign wealth fund, the Caisse de dépôt et placement du Québec, APG and the Abu Dhabi Investment Authority was a good example of how managers would likely be global sector specialists as well as regional specialists with significant teams on the ground, including in Asia. They must have a track record of investing in these sectors. As of the end of June, the fund had 1.4% of its AUM (approximately NZ$900 million) invested in infrastructure.
In October, the fund invested €125m ($145m) in Copenhagen Infrastructure Partners’ (CIP) Energy Transition Fund, which develops sustainable energy infrastructure, known broadly as Power-to-X (power-to-hydrogen, power-to-ammonia and power-to-methanol). This fund is hoping to raise €2.25 billion in assets.
NZ Super targets investments that enable decarbonisation; it strives to reduce emissions on its assets by, for example, sourcing renewable energy for data centres and electrifying heating systems. It recently signed up to the Net Zero Asset Owners Commitment, an initiative open to international asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, and set interim targets for emissions reductions.
McVitty said NZ Super was well placed to serve the growing capital requirements needed to decarbonise electricity generation and reduce societies’ emissions footprint, in part due to its long investment time horizon. No withdrawals are scheduled before 2035, and substantial outflows are unlikely until 2050 at the earliest, allowing it to focus on earlier-stage opportunities.
Legacy investments include the plan’s largest infrastructure investments - a global mandate with manager Morrison & Co, struck in 2006, comprising holdings in European renewable energy operator Galileo Green Energy, US alternative energy platform LongRoad Energy Holdings and Australian retirement village operator RetireAustralia. It also has 0.2% of its AUM in China Infrastructure Partners V Fund, an unlisted investment made in 2011.
McVitty said the fund was less interested in traditional liability-matching assets such as operating windfarms, where demand has pushed prices to a premium. Instead, it favours value-add investments into younger, growth orientated assets or funds that need capital to develop on their potential. However, in some cases, it might still consider core opportunities, she added. “There might be a very attractive solar operating platform in Vietnam or Korea; it is more about where we see active return above our benchmark and partners with experience.”
In digital infrastructure McVitty said the fund sees investment opportunities in fibre networks and towers as 5G networks are rolled out around the world, as well as the growing demand for data centres and other digital assets.
Earlier this year the fund saw its co-investment in Novva Data Centres grow to US$57million, alongside CIM Group, a North American real estate and infrastructure owner and operator.
“Towers tend to be more core, but [in] fibre we would look to an existing platform needing capital to scale and roll out network,” she said. Those behind opportunities would need a good grasp of the market, prior experience in the sector and access to sticky customers.
The fund's domestic investment in the coming years is likely to centre on its SuperBuild initiative, which seeks major infrastructure and urban development projects in New Zealand, with an emphasis on joint ventures and projects that help the fund meet its net zero targets. “We don’t have a big investment team so we need to partner with strong operating partners,” she said.
The initiative has its roots in a bid to the NZ government, made in partnership with Canadian Fund CDPQ, for the Auckland light rail project, which the government has now deferred. In its annual report for 2021, NZ Super said it had advised the New Zealand government that the private sector should provide a larger share of infrastructure financing in the years to come.