NZ Super cleared for sensitive US direct investments

The New Zealand Superannuation Fund (NZ Super) is set to benefit from a new ruling by the US's Committee on Foreign Investment (CFIUS), while New Zealand is set to be added to the list of countries exempted from investment restrictions related to US national security.

On January 5, the US Department of the Treasury, as chair of the CFIUS, determined that New Zealand and the UK should be granted temporary exemption from restrictions on foreign ownership, on the basis they are utilising robust processes to satisfy US national security risks. Australia and Canada are already permanently exempt.

A spokesman for the $60 billion fund, Conor Roberts, welcomed New Zealand’s addition to the list of foreign exempt states. “It’s positive to see New Zealand added to the list. It will mean less onerous requirements when we’re undertaking transactions there, and it smooths the way for new investments.”

Historically, CFIUS only had jurisdiction over investments by foreign entities that resulted in the foreign investor obtaining control over a US business. The Foreign Investment Risk Review Modernisation Act of 2018 (FIRRMA) expanded the jurisdiction of CFIUS to cover non-controlling investments in more sensitive US businesses. These so-called TID businesses involve critical technology, infrastructure and sensitive personal data. The expanded rules also involve real estate located in close proximity to sensitive US government facilities. 

New Zealand’s exemption from these rules means that CFIUS only has jurisdiction over transactions if the foreign investor obtains complete control over a US business. 

Roberts said that while CFIUS hadn’t necessarily stopped any of its investing activities, the previous requirements did add a measure of uncertainty as well as time and cost. He said NZ Super was aware of some infrastructure investment deals, in particular, where exempted entities appeared to receive preferential access.

NZ Super has $21 billion invested in US equities, mostly through index funds and active mandates with American investment managers, but the changes will primarily impact direct investing activity where NZ Super holds larger individual stakes in US companies. These include $818 million invested in companies such as renewable energy producer Longroad, carbon capture company LanzaTech, and waste management company Rubicon.

Australia, Canada, and the UK were all given their original exemptions in February 2020. Roberts said there was a bit of consternation about New Zealand not being included when the excepted countries list was first established. Its inclusion on the excepted foreign states list beyond February 12, 2023 remains subject to a further determination next year.

“In other words, both countries have a little more than a year to demonstrate they have established and are effectively utilising robust processes to analyse foreign investments for national security risks, and facilitate coordination with the US on matters of investment security," according to US law firm Cleary Gottlieb. 

The firm also said it is possible that CFIUS will designate other countries as exempted foreign states, "as the global foreign direct investment trend, particularly in the European Union and ally countries in Asia, continues.”

Roberts said NZ Super expects to continue growing its investment footprint in the US.

"The immediate result allows us to operate on a level playing field. CFIUS rules haven’t prevented any of our US investing activities, although we have been aware some infrastructure opportunities saw preferential engagement with CFIUS exempted entities."