Archive | NZ Super Fund

Reserve Bank plays unchanged game, and Peters unimpressed

The Reserve Bank left the official cashrate unchanged at 1.75% yesterday.

The bank’s acting governor, Grant Spencer, said: ‘”Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

This nudging along of economic policy doesn’t sit well with the man with the most influential say on future directions, NZ First leader Winston Peters.

Winston Peters.

While voters who believe we’re still in the era of first-past-the-post elections have been busily writing letters to editors explaining that, as National got most votes, it therefore won and should govern, Mr Peters has issued a few statements indicating likely shifts in economic direction:

  • He said the decision to hold the official cashrate at 1.75% “maintains the tone of complacency on New Zealand’s economic outlook”
  • He criticised National for taxing the NZ Superannuation Fund and not making taxpayer contributions for 10 years, and
  • 2 days before the election, he issued a statement affirming his view that the immigration level was too high, criticising the National government “for deluding the public these migrants are skilled”.

Those who see Mr Peters as a negative poser should find his advocacy for change refreshing, because all his policies of the last week have been about improving economic performance.

He issued succinct statements on what the Super Fund ought to be doing, how the Government ought to be supporting it and how international markets bloated with ultra-cheap money are riding for a fall.

Crucially, Mr Peters might change the view commonly held by Western central bankers, including New Zealand’s, that the policy of printing money to stimulate economies is flawed.

But first the Reserve Bank view, from Mr Spencer:

Grant Spencer.

“Global economic growth has continued to improve in recent quarters. However, inflation & wage outcomes remain subdued across the advanced economies and challenges remain with ongoing surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are near record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

“The trade-weighted exchange rate has eased slightly since the August Reserve Bank monetary policy statement. A lower $NZ would help to increase tradables inflation and deliver more balanced growth.

“GDP in the June quarter grew in line with expectations, following relative weakness in the previous 2 quarters. While exports recovered, construction was weaker than expected. Growth is projected to maintain its current pace going forward, supported by accommodative monetary policy, population growth, elevated terms of trade and fiscal stimulus.

“House price inflation continues to moderate due to loan:value ratio restrictions, affordability constraints and a tightening in credit conditions. This moderation is expected to continue, although there remains a risk of resurgence in prices given population growth & resource constraints in the construction sector.

“Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters, reflecting volatility in tradables inflation. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

If you think those closing words are familiar, you’re right: they’re identical to the bank’s closing paragraph in its March statement.

Peters on Reserve Bank

Mr Peters saw less of the smoothing, more a likelihood of troubled times internationally: “Beneath the veneer of stability, large risks are lurking in the global economy. The prolonged era of ultra-cheap money has created expectations that this unprecedented period will continue forever. Fed by cheap money, share & property markets are at record levels and have a long way to fall. In particular, the US share market has had an amazing run with barely a hiccup. In China, debt levels are staggering.

“Irrational exuberance rules. It is impossible to predict when, but something will go wrong and New Zealand should be prepared.”

On the Super Fund

The NZ Super Fund reported a 20.7% return for the year on Wednesday, but Mr Peters went behind that performance to look at a gigantic loss brought about by 2 National acts: “National should apologise to New Zealanders for robbing their NZ Super nest egg,” he said.

“Taxing the NZ Superannuation Fund, and not making taxpayer contributions for 10 years is a serious economic loser.

“The magnificent 20.7% return achieved by the fund in the year to 30 June will help meet future demand for NZ Super, but the nest egg could have been so much bigger if the National government had kept its hands off it.

“In 2015, then Finance Minister Bill English said: ‘Over time, along with the other funds, it will become a more & more significant part of the economy’. That’s ironic given he started taxing it in 2014.

“NZ First would encourage the fund’s managers to invest in infrastructure in New Zealand so it works for New Zealand’s long-term interests.”

On immigration

As for the high net immigration level – 73,500 in the year to August – Mr Peters said it would ensure housing, health services & infrastructure would continue at bursting point.

“The Government deludes the public these migrants are skilled – it’s a myth, most of them are unskilled & drawn to this country in many cases by the generosity of our social services.

“Few countries in the world are as generous, or soft, as we are. Where are the new hospitals, the extra doctors & nurses, the new schools & general infrastructure to cope with all these people?

“New Zealanders find it harder to get a job with the influx from overseas. The fact is, every year we are creating a city the size of Rotorua and the country cannot handle it. Even the Prime Minister [Bill English, in a reference 2 days before the election] admits they can’t keep up with population growth.”

Earlier stories:
22 September 2017: An immigration pause – or a turning point?
6 September 2017: Updated: Reserve Bank sublets to help pay the rent
5 July 2017: Super fund explains tilting strategy
9 June 2017: Reserve Bank raises question of new debt:income loan limits
23 March 2017: Housing supply the main concern as Reserve Bank holds cashrate
30 September 2014: Super guardians pose some investment thoughts
29 September 2008: NZ Super Fund has $2 billion turnaround to $880 million loss

Attribution: Bank & Peters releases.

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Super fund explains tilting strategy

The Guardians of NZ Superannuation, the Crown entity that manages the NZ Super Fund, has published a paper on its strategic tilting programme for investment – how it works, how it aligns with the fund’s endowments & investment beliefs, and the performance to date.

The authors of the paper, the fund’s head of asset allocation, David Iverson, & strategic tilting manager Alex Bacchus, say the strategy has performed above expectations since inception on 1 April 2009 through to 30 April this year, returning about 1.2%/year (or about $2 billion): “This exceeds our expectations of 0.4%/year return (estimated since inception).

“Tilting returns have been uncorrelated with the reference portfolio returns since we began, and the strategy has only marginally increased the fund’s realised risk during this period. However, we acknowledge that the 8 years since inception is a relatively short timeframe for performance evaluation of a long-term strategy.”

Link:
NZ Super Fund, 3 July 2017: How we invest white paper: Strategic tilting

Attribution: Fund release & paper.

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Super Fund confirms sale of offshore property funds

The NZ Superannuation Fund has agreed the sale of its investments in 5 offshore private equity real estate funds to investment funds advised by affiliates of Partners Group AG, a global private markets investment manager listed in Switzerland and serving 850 institutional investors.

The investments which have been sold are Orion European Real Estate Fund III, Mountgrange Real Estate Opportunity Fund, MoREOF (Parallel I) Unit Trust, Red Fort India Real Estate Fund II & Gateway Capital Real Estate Fund III.

NZ Super Fund head of investments Fiona Mackenzie said: “While private equity real estate has been a profitable part of the fund’s portfolio, these were relatively small investments and the move to sell them is consistent with our strategy to have fewer, deeper relationships with our investment managers.”

The sale price is confidential. None of the funds sold included New Zealand assets.

Attribution: Fund release.

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Super fund sells down and Infratil sells out of Z Energy

Z Energy Ltd shares went into a trading halt overnight pending completion of a bookbuild for Infratil Ltd to sell its whole 20% of the company and the NZ Superannuation Fund to sell 9.725%.

The indicative price range for the bookbuild was set at $6-6.20/share, down from Tuesday’s closing price of $6.63. The institutional bookbuild will close at 4pm this Wednesday, 30 September.

Infratil & the fund entered a 50:50 partnership in 2010 to buy the downstream assets business of Shell NZ, which became Z Energy, and 17.1% of The NZ Refining Co Ltd for a base purchase price of $696.5 million, plus an adjustment for actual net working capital in excess of $208 million at settlement date.

The 2 partners recouped $840 million when they listed Z Energy in 2013, selling 60% of it at $3.50/share.

Infratil will collect $480-496 million for its remaining 80 million shares, depending on the bookbuild price, and the super fund $233.4-241.2 million from its sale of 38.9 million shares.

The Guardians of NZ Superannuation’s chief investment officer, Matt Whineray, said today the fund would retain a stake of more than 10% in the company, reflecting the Guardians’ confidence in Z Energy’s business strategy & management team.

Mr Whineray said: “The current market environment provides an opportunity to reduce the fund’s large overweight position in Z Energy and realise further value from what has been a highly successful investment. We look forward to continuing our relationship with Z Energy through the retention of our significant minority stake.”

Attribution: Company & fund releases.

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Propbd on Q F3July15 – Super Fund mandate, DJs progress

Mint gets Super Fund mandate
2 steps towards DJs’ Wellington opening

8.23am:
Mint gets Super Fund mandate

The NZ Superannuation Fund has appointed Mint Asset Management Ltd has been appointed to a $150 million active New Zealand equities mandate, effective 1 July.

Super Fund chief investment officer Matt Whineray said yesterday transition of the mandate to Mint had been completed. He said the fund was committed to using a combination of external managers alongside its internal team to manage its $1 billion-plus portfolio of New Zealand equities.

Devon Asset Management also has an active New Zealand equity mandate, but Milford Asset Management Ltd’s mandate remains suspended and is being managed by the fund’s guardians until further notice.

2 steps towards DJs’ Wellington opening

The directors of Kirkcaldie & Stains Ltd said yesterday landlord consent to assign the lease on its Wellington department store to Australian retailer David Jones Pty Ltd and for refurbishment had been granted, and David Jones had also extended by one day the timeframe for Kirkcaldie’s to get shareholder approval for the sale.

Kirkcaldie & Stains intends to call the meeting for approval on 31 July. Approval will pave the way for David Jones to open its first New Zealand store in the Lambton Quay premises in mid-2016.

Attribution: Fund & company releases.

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NZ Super Fund fights Portuguese loan switch back to toxic bank

The NZ Superannuation Fund said yesterday it was fighting the Bank of Portugal’s switch of a senior debt obligation from Banco Espírito Santo’s “good bank”, Novo Banco, back to the toxic side of the bank.

Espírito Santo was split in 2 last August, when it received a €4.4 billion bailout.

NZ Super Fund chief executive Adrian Orr said the fund had written down its $US150 million exposure to the Oak Finance loan while it & other investors took the Bank of Portugal to court over its December decision to retrospectively return the loan to the toxic bank after transferring it & other senior debt obligations to the good bank.

Mr Orr said the dispute had wider ramifications: “In making this loan, the fund was providing liquidity to the Portuguese banking system. The fund was protected against the risk of Banco Espírito Santo defaulting through the purchase of credit insurance. This is a very standard, insured, investment activity globally that keeps the financial world liquid. The Bank of Portugal’s actions, however, in treating the Oak Finance loan differently to all other senior debt obligations, appear to have had the effect of negating this insurance.”

Mr Orr said the New Zealand Superannuation Fund had successfully undertaken the provision of liquidity, among other investment activities, over a long period. “This is a standard, low risk investment activity for institutions such as the fund.

“The Bank of Portugal’s retrospective decision puts our liquidity provision activities with respect to Portugal – and potentially other jurisdictions – at risk, given the apparent unreliability of debt provision & credit protection policies.

“It is concerning for investors in Portuguese banks that senior debt can be treated on a similar basis to equity & subordinated debt, solely by virtue of the debt arranger’s – not lender’s – shareholding in the bank.”

The Bank of Portugal based its decision on a view that investment bank Goldman Sachs, which arranged the loan, was both an associate of Banco Espírito Santo and had in fact made the loan.

“As Goldman Sachs has said publicly and to the Bank of Portugal, Oak Finance was an independent entity from Goldman Sachs International. We understand that at no point did Goldman Sachs hold a participatory interest in more than 2% of Banco Espírito Santo’s shares.

“Legally, the loan arranger’s shareholding in Banco Espírito Santo should not be the basis for treating the Oak Finance loan as related-party lending.”

The switch came after the Bank of Portugal gave written assurances that senior debts such as the Oak Finance loan had moved to Novo Banco. Novo Banco also confirmed in writing that the Oak Finance loan had been transferred as one of its liabilities.

Mr Orr commented: “We note that Novo Banco continues to have the benefit of the money that we lent.

“It will also be of considerable concern to any investor that the Bank of Portugal has not treated all senior debt holders equally. We understand that holders of senior bonds arranged & underwritten by at least one other financial institution have remained with Novo Banco when, unlike the position with the Oak Finance loan, the bonds were subscribed by a related party of a substantial shareholder in Banco Espírito Santo.”

Link: NZ Super Fund timeline & background

Attribution: Fund release.

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Infratil & NZ Super Fund enter new JV to buy RetireAustralia

Infratil Ltd and the NZ Superannuation Fund have entered into another 50:50 joint venture, this one to buy Australia’s largest privately owned retirement village owner & operator, RetireAustralia.

Infratil and the Super Fund bought Z Energy Ltd – Shell NZ Ltd’s distribution & retail businesses and 17.1% interest in the NZ Refining Co Ltd – from global energy company Shell in 2010. Their remaining 20% each on listing was locked in until the release in November of Z’s results for the half-year to 30 September 2014.

The 2 partners announced their Australian joint venture in a statement to the NZX & ASX after the markets closed on Christmas Eve.

Their agreement is to acquire 100% of RetireAustralia from JP Morgan Chase & Co and Morgan Stanley for $A640.2 million, with settlement scheduled for Wednesday, 31 December.

Australia media said early this year the vendors had contemplated listing RetireAustralia, but abandoned that option in August.

Infratil & the Super Fund will invest $A214.8 million of equity each and take over existing bank debt on RetireAustralia’s balance sheet for the remaining 30% of the investment.

The consideration includes estimated transaction costs of $A23.5 million and is subject to the usual completion adjustments for working capital & net debt. The acquisition price represents a multiple of 1.0x NTA.

RetireAustralia managing director Tim Russell founded Meridien Retirement Living (now RetireAustralia) in 2005 and built up a portfolio of 3700 independent living units & apartments through the acquisition of 28 retirement villages in New South Wales, South Australia & Queensland, with development plans for another 500 units. It is the largest privately held pure-play retirement operator in Australia.

Mr Russell spent 10 years in investment banking & funds management at Graham & Co and Bankers Trust before joining FKP Ltd as investments general manager in 2003. He was responsible for creating FKP’s real estate funds management business and had overall responsibility for its retirement business.

FKP, previously a property developer, also became Australia’s biggest retirement village operator a decade ago. Through the Retirement Villages NZ Ltd partnership with Macquarie Bank, FKP bought a majority stake in NZX-listed Metlifecare Ltd, exiting at the end of 2013 after the merger of 3 retirement village companies into an enlarged Metlifecare.

Out of that selldown, Infratil & the NZ Super Fund acquired 19.88% of Metlifecare each.

Infratil chief executive Marko Bogoievski said in the Christmas Eve statement: “RetireAustralia provides a strong platform in an Australian sector that offers very attractive long-term growth prospects…. The business has the potential to become the market leader in the retirement living sector.

“RetireAustralia is led by an experienced management team and comes with a strong development pipeline & a mature existing portfolio. Underlying ebit for the June 2015 financial year is forecast at $A35-40 million. [Underlying earnings before interest & tax is a non-GAAP financial measure which removes the impact of non-cash items, deferred tax & the impact of the company’s capital structure.]

“We have spent a considerable amount of time evaluating the sector in Australia and identified RetireAustralia as a high quality access point, given the profile of the assets and the capability of the management team.”

Super Fund chief investment officer Matt Whineray said: “We are pleased to be increasing our exposure to the retirement village sector in Australia. The sector’s attractive demographics & growth opportunities make it a good fit for long-term investors such as the NZ Super Fund.”

RetireAustralia chief executive Mr Russell said: “My preference has always been to find owners like Infratil & the NZ Super Fund who have the necessary experience & access to capital to enable a long-term focus for the business as it enters the next phase of growth.”

Attribution: JV release.

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Propbd on Q T9Dec14 – Site consent for waterfront hotel, Super Fund buys into LanzaTech, baggage hall extension, NZX buys SuperLife

Waterfront Auckland applies for hotel site integrated development plan
Super Fund buys LanzaTech stake
Airport completes baggage hall extension first stage
NZX acquires SuperLife

11.20am:
Waterfront Auckland applies for hotel site integrated development plan

Waterfront Auckland has applied for resource consent to facilitate the hotel development proposed for the Team NZ site at 101-135 Halsey St in the Wynyard Quarter.

Beijing-based Fu Wah International Group has already been signed up as the developer, and last month it named Park Hyatt as the brand.

Waterfront Auckland, the landowner, filed notice today for an integrated development plan & associated development control modifications to establish the spatial framework for the hotel. It hasn’t sought consent for the design of a particular building or for construction.

The application includes a number of activity & development control infringements, including height, gross floor area and being in a risk-sensitive area.

Submissions on the application close with Auckland Council on Tuesday 27 January.

Earlier stories:
21 November 2014: Chinese hotel on Viaduct waterfront to be a Park Hyatt
16 April 2014: Update: Wynyard hotel construction cost closer to $700,000, leasehold factors undisclosed

Super Fund buys LanzaTech stake

The NZ Superannuation Fund has made a $US60 million equity investment in gas fermentation company LanzaTech, which was founded in New Zealand in 2005 but now has its headquarters in Chicago.

LanzaTech turns waste gas from steel mills into ethanol & other high value fuels & chemicals.

The Super Fund’s head of international direct investment, Nigel Gormly, said yesterday: “LanzaTech is one of the most exciting companies New Zealand has produced, with significant global potential.”

The investment is one of a series of “expansion capital” investments the Super Fund has made in recent years, providing capital to privately owned, early-stage companies that are seeking to grow, but are not yet ready to list on the public markets.

In New Zealand, the fund invests in expansion capital via investment managers Pencarrow Private Equity, Pioneer Capital Partners & Waterman Capital.

Mr Gormly said the fund was attracted to LanzaTech because of the exposure it provided to the waste-to-energy sector. The company’s first commercial plant is targeted for operation in 2016.

Airport completes baggage hall extension first stage

Auckland International Airport Ltd has completed the first stage of an extension to its international baggage hall, opening a 90m extension and a sixth baggage belt capable of handling over 500 passengers from an Airbus A380 flight.

Work on a seventh belt will start early next year.

The Ministry of Primary Industries’ biosecurity area next to the international baggage hall has also been extended to provide increased space & improved flow for biosecurity checks.

NZX acquires SuperLife

NZX Ltd has acquired superannuation & passive funds manager SuperLife Ltd, saying yesterday this would position it strongly in the growing retirement savings market and enable the launch of new financial products by NZX’s Smartshares business.

SuperLife has over $1.27 billion of funds under management & 41,000 members, making it one of New Zealand’s largest specialist financial services providers of superannuation, KiwiSaver & managed investments products.

NZX chief executive Tim Bennett said the stock exchange owner intended to manage the combined funds management business separately from its capital markets business, and had begun the search for a chief executive for the combined business. SuperLife’s directors, Michael Chamberlain & Owen Nash will continue as directors of SuperLife, and Mr Chamberlain will join NZX’s management team.

Attribution: Super Fund, NZX, Auckland Airport releases, council notice.

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Super guardians pose some investment thoughts

The Guardians of NZ Superannuation issued 3 short discussion papers today from internal workshops on diversification, the advantages of being a long-term investor and investment manager skill.

Normally I’d skip “worthies” like this as getting beyond the scope of this website. But today I ventured in, first, to the skill paper and realised that, while the Super Fund is examining how it carries out its role as a sovereign wealth fund, its standards are well worth evaluating for the commercial fund management world as well.

Take externally managed listed property entities and the managers of private investment funds, for example: If performance fees are based on gross assets or returns, is the manager skimming an unreasonably large layer of icing off your cake?

This is a conclusion of the Guardians: “Through properly analysing a series of investment manager returns, it is possible to identify the presence & significance of beta & risk factors. You can then construct an appropriate benchmark to ensure that market movement driven by any of those factors is captured within the benchmark, and not attributed to the manager’s ability to generate extra returns.

“This makes the benchmark harder to beat (as a benchmark should be) and also means you should not pay an extra return premium, through performance fees, for what is not actually an extra return.”

On the question of being a long-term investor, the Guardians said: “We think that long-term influences, even when widely accepted, sometimes may not be priced in by the market, and so we are also an investor in selected long-term themes. These include:

  • the unsustainability of current resource usage patterns
  • the inefficiency of emerging markets, and
  • population ageing & other demographic shifts, such as increasing urbanisation of many developing countries.

Link: Guardians, white papers

Attribution: Guardians papers.

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Z Energy priced at $3.50

Z Energy Ltd shareholders Infratil Ltd & the NZ Superannuation Fund will realise a gross $840 million from their sale of 60% of the fuel retailer at $3.50/share.

The price is the midpoint in the initial public offer range of $3.25-3.75.

Infratil chief executive Marko Bogoievski said yesterday: “We received a strong response from the retail broker network, with their allocations requiring significant scaling. We have also been delighted with the positive response from institutional investors, which we see as a validation of the New Zealand economy, the transport fuels industry and the achievements of Z under our ownership.”

“Our feedback suggests investors have been attracted to Z Energy’s cashflows, dividend outlook & range of potential future growth areas.”

Z will be New Zealand’s first listed transport fuels distribution company and is expected to be among the 20 largest New Zealand companies on the NZX main board. Shares in Z will start trading at 11am on Monday, initially on a conditional settlement basis.

Infratil and the Super Fund bought Z – Shell NZ Ltd’s distribution & retail businesses and 17.1% interest in the NZ Refining Co Ltd – from global energy company Shell in 2010, with each party taking a 50% share. Their remaining shares on listing will be locked in until the release of Z’s results for the half-year to 30 September 2014.

Attribution: Company release.

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