Guardians' Stakeholder Update - May 2022
POSTED ON: 13 May 2022
The first few months of 2022 have been busy for the Guardians with a high level of investment activity, recruitment activity and some lovely accolades.
First, some good news: the NZ Super Fund is the top performing sovereign wealth fund globally, according to a recent report by Global SWF. Global SWF compared investment returns across 20 major sovereign wealth funds and 20 major public pension funds over the last six years (FY16 to FY21). The NZ Super Fund ranked first among sovereign wealth funds and third out of all forty funds covered, with an 11.79% p.a. return over the period.
Six years is a short period in the context of the NZ Super Fund’s mandate and, while we’re delighted with the outcome, longer term performance is what really counts. As at the end of March, the Fund has returned 10.23% p.a. since inception (unaudited, after costs, before NZ tax), well ahead of expectations. Investing for nearly 20 years, it has generated over $40 billion more than the cost to the Government of contributing to it, making a meaningful contribution to New Zealand’s national wealth.
Recent market conditions have seen the value of the NZ Super Fund drop, and Global SWF expect fund performance figures generally to deteriorate next year. This year is certainly proving to be a challenging one for markets.
Rising interest rates continue to weigh heavily on equity markets as central banks, including those in the US, UK, Australia, Canada and New Zealand, look to raise policy rates in order to tame strong inflation pressures. Russia’s invasion of Ukraine initially saw equity markets sell off sharply on the back of military action and the raft of economic sanctions applied against Russia. Commodity prices also spiked higher given Russia and Ukraine’s role as significant global producers of commodities such as oil, natural gas and wheat (amongst others).
Higher commodity prices both amplify inflation pressure and act as a headwind for global growth, complicating the task of central bankers as they raise interest rates. March saw some recovery in equity markets as worst case scenarios were avoided, but sold off again during April and early May.
NZ Super Fund performance
At the time of writing the Fund stands at $57 billion, which is down from $59 billion at the end of the last financial year, but around the same level it was at the end of April 2021. As in previous market downturns, we are looking to make the most of our long-term horizon, investing in a contrarian style and buying assets when we consider them to be cheap.
The fact that the Fund is not due to start paying out to cover superannuation costs until the early 2030s means we’re well positioned to take advantage of the current market conditions. Further performance information is available on our website. Note: all performance figures are after costs, before NZ tax.
In December 2021 we made a commitment to a diversified infrastructure fund managed by Stonepeak. The fund is Stonepeak’s flagship series and focuses on value-add assets primarily located in North America. Stonepeak is a specialist infrastructure manager that has close to 200 staff globally and US$46bn under management.
We have increased our investment in Slate Asset Management’s European portfolio, committing a further EUR 70m to the Slate European Essential Real Estate Fund. The proceeds of this investment were used to acquire two portfolios of Norwegian grocery assets (38 individual stores) that will sit alongside the German seed assets we funded last year. The majority of the Norwegian assets are concentrated in and around Norway’s two most densely populated cities, Oslo and Bergen. Notably from a sustainable investment perspective, 100% of energy within the larger portfolio (36 assets) is generated by renewable energy sources and the existing tenants are committed to their own sustainability initiatives such as reducing plastic waste, CO2 emissions and food waste.
Exploring potential for offshore wind energy in the South Taranaki Bight
Last month we announced our partnership with Copenhagen Infrastructure Partners (CIP) to explore the potential for large-scale offshore wind energy in the South Taranaki Bight. We have an existing relationship with CIP and recently committed NZ$208m to its Energy Transition Fund, which is focused on industrial-scale sustainable energy infrastructure, known broadly as Power-to-X (power-to-hydrogen, power-to-ammonia and power-to-methanol).
CIP believes the offshore wind resource off the South Taranaki coast is exceptional by world standards. Furthermore, the relatively shallow water depths allow the installation of fixed offshore wind turbines, a technology that is well understood and proven around the world.
Subject to feasibility, an initial planned 1GW development would represent over 11 per cent of New Zealand’s current electricity demand capacity and could power over 650,000 homes. We are excited to be progressing the project, which has the potential to generate not just attractive commercial returns for the Fund, but also great benefits for New Zealand.
Recently NZ Super Fund and CIP gave a stakeholder briefing into the project.
Iwi partners buy into Beachlands South Partnership
We’re delighted to welcome local iwi Ngāi Tai ki Tāmaki and joint iwi investment vehicle Hāpai Development Property LP to our Beachlands South partnership, which is led by the Russell Group. Collectively, the iwi investors have acquired a 5% equity stake in the partnership, which aims to develop a large south-east Auckland site with around 3,000 dwellings as well as commercial, retail, education and open space.
We have a long track record of successful partnerships with iwi investors and look forward to working closely with them and the Russell Group to ensure the development is both commercially successful and delivers strong cultural, environmental and social outcomes.
We have a strong interest in New Zealand’s climate reporting regime, both as a reporting entity in our own right, and given our dependence on being able to obtain good data from existing and prospective investee companies to inform our decisions. We’ve made a number of submissions in support of the Government’s proposals for climate reporting and emissions reduction.
Russian Investment exclusions
In March we announced that Russian Federation sovereign debt and the securities of majority Russian state-owned enterprises had been excluded from the Fund on responsible investment grounds.
Since then, the NZ Government has announced further sanctions on specific Russian entities. All Fund investments in Russian sovereign debt have been sold and we have instructed our investment managers to divest from excluded and NZ Government sanctioned stocks as soon as market constraints permit.
Recruitment continues to be a strong focus as we look to increase resourcing in a number of areas across the team. In particular, we are delighted to welcome:
- Kathryn Kerner as Head of Data Analytics from the Federal Reserve Board
- Rachael Le Mesurier CNZM from Oxfam Aotearoa as Head of Diversity, Equity and Inclusion
- Kevin Wong as Senior Investment Strategist in the Asset Allocation team who joins from Australian Retirement Trust
These are areas where we have challenging and exciting work to do and we look forward to sharing more with stakeholders in the future.
Current job opportunities are available on our website.
If none of these jobs are right for you, but you’re interested in working for us, please consider joining our talent bank.
We have an exciting speaking programme coming up over the next couple of months, with highlights including:
- CEO, Matt Whineray will be joining a panel of industry experts to discuss Infrastructure funding opportunities in 2022 and beyond at the upcoming Infrastructure Funding and Financing Conference being held on 30-31 May.
See the full agenda and register for the Infrastructure Funding and Financing Conference
- Head of Direct investments, Will Goodwin, will be joining a panel discussion ‘Global solutions in alternative investing: Emerging markets, Regional Focus and Striking the right balance’ at the upcoming Pensions and Investments Alternatives Investing Conference on June 17.
Register for the virtual Pensions and Investments Alternatives Investing Conference
Our staff have returned to office-based working in Jarden House, Auckland, on a flexible, voluntary basis. We are also welcoming external visitors again, who will be required to wear masks while moving through the building. International and domestic travel has also resumed.
We look forward to reconnecting in person with our stakeholders, partners and suppliers in other cities and countries over the course of the coming months.
Thank you for your continued support.
Noho ora mai,
The team at the Guardians