NZ Super Fund hunts fourth partner for sustainable finance

The NZ Super Fund is looking to partner with another external fund manager this year to gain more exposure to sustainable transition investment.

Tuesday, January 24th 2023, 2:42PM

by Andrea Malcolm

That would bring the number of external partners in sustainable fund management to four following US VC company Fifth Wall in 2021, and UK-based Generation Investment and US-based Wellington Management last year.

NZSF head of external investments and partnerships Del Hart says, the move to co-investing has come about because of the need to invest at scale as the NZSF increases in size (currently $59.64 billion).

“In terms of our sustainable transition opportunities, we need to invest externally with managers whom we can form very long term partnerships with and can increase capital allocation over time. That's a high level goal in terms of what we're trying to achieve with these external partnerships. We have set up initial mandates allocating capital for funds and greater investment through co-investment, which is quite new. We need to invest at scale as our fund gets larger.”

Hart says with a small amount of risk budget left, the NZSF will add one more partner this year.

After a highly targeted search, some strong candidates have emerged. Timing will be determined by the fundraising cycle of the manager chosen but should be around Q2 or Q3.

Asked whether NZSF would partner or invest in a New Zealand-based sustainable finance fund, Hart says it's a matter of scale.

“It can be challenging for us just in terms of the size of these funds. But that being said, we're always looking at different ways to engage and share knowledge with local managers and organisations in the sustainable finance space. I feel that it’s part of our role so we certainly have conversations.”

It’s all part of the NZSF resetting its responsible investment compass towards impact which started with moving its passive global equity portfolio to an MSCI Paris-aligned index.

“It's been a significant change. We now have an impact investment plan in place which we're starting to implement.”

With the existing portfolio, NZSF will work with managers to map which assets meet the impact criteria of having a desirable outcome on the environment or society.

“Under the new impact investing framework and criteria, a fund like Movac wouldn’t meet the criteria, despite our view that Movac is a manager with robust responsible investment considerations integrated into their processes and we believe there are likely to be companies that they invest in which may have an impact angle.”

Hart says NZSF will start reporting on impact, including case studies, in the next annual report and that impact investment will not be limited to private equity. “We believe there are a number of areas we can invest where we can achieve impact. We have some priority areas but real estate is an example where there's a lot we can do in the investment space, and that can create really impactful outcomes. Infrastructure is another area we are looking at.”

Hart says sustainability is part of everyone’s role. “The sustainable investment team (formerly the RI team) are the experts in terms of broader sustainable finance and they work with the investment team but every team member looks at investments and we are building capability, and thinking about what training people can do on the job, externally and through learning from our investment partners.”

Tags: NZ Super Fund