Future Fund and NZ Super hone in on green infrastructure assets
Two of Asia Pacific’s (Apac) largest investing institutions are ramping up their focus on infrastructure as they seek to increase their exposure to sustainable assets.
Australia’s US$150 billion Future Fund and the US$43 billion New Zealand Super Fund (NZ Super) see their direct investment in infra assets contributing strongly to future growth.
Speaking at the announcement of the Future Fund’s latest portfolio update on Monday, CIO Raphael Arndt said: “Our exposure to infrastructure increased with the financial close of our investments in Telstra’s network of mobile tower sites and Tilt Renewables’ Australian portfolio, via the Powering Australian Renewables partnership.”
Meanwhile, NZ Super is committing US$150 million to the Copenhagen Infrastructure Partners (CIP) Energy Transition Fund, which is focused on developing industrial-scale sustainable energy infrastructure, including power-to-hydrogen, power-to-ammonia and power-to-methanol. The fund currently has five greenfield projects located in Denmark, Sweden, Spain, Norway, and Australia, with several others in the pipeline.
Private asset owners have invested over $1 trillion in infrastructure assets globally in the last 10 years, according to OECD data. But most of that capital has been deployed in developed markets as Apac infrastructure investments are still considered immature and higher risk. However, at least some of NZ Super’s most recent investments in sustainable energy infrastructure will be deployed in the region.
NZ Super’s CIO Stephen Gilmore said CIP has a strong track record of identifying infrastructure opportunities in clean energy, including offshore and onshore wind, solar PV, biomass and energy-from-waste.
“In addition to reducing the risk to our portfolio arising from climate change, we also want to take advantage of opportunities in areas such as energy transition, renewable energy, and decarbonisation infrastructure,” said Gilmore.
“As a long-term investor, we’re attracted to the risk-adjusted returns available from infrastructure investments and are looking to increase exposure to infrastructure both internationally and domestically.”
Historically, NZ Super has been under-invested in infrastructure and real estate relative to where they’d like to be, according to Del Hart, head of external investments and partners at NZ Super, in the fund’s annual report released on 13th October.
To address this, the fund made one major hire this year, appointing Josie McVitty as infrastructure senior advisor to the direct investments team. McVitty has led a strategic review of infrastructure strategy and will be instrumental in the sourcing and management of infrastructure assets.
As the Future Fund’s board of guardians released its portfolio update, fund chairman Peter Costello said that after its exceptional 22% return in 2020 to 2021, the Future Fund continued to grow in the September 2021 quarter.
With a 10-year return of 10.5% per annum, against a target return of 6.1%, the Future Fund now stands just shy of the A$200 billion ($150 billion) mark.
“Investment returns have slowed a little from the boost provided by the global economic recovery, and the dividend from re-opening is beginning to fade,” said Costello.
“Globally, uncertainties around inflation, the adjustment of fiscal and monetary policy, and geopolitical tensions remain, and despite some weakening in markets, asset prices remain elevated."
“[The board has taken] a prudent approach to positioning the portfolio with risk levels at a neutral setting, around the middle of the range we would normally expect,” Costello said.
Arndt added that the Future Fund investment team continues to position the organisation for the long-term, in recognition that Covid-19 has accelerated and catalysed changes in the investment environment.