NZ Super commits $250m to KKR energy investments

Up to $175 million will be directed, on a flexible basis, to investments made by KKR in natural gas exploration and production as well as energy infrastructure and services. The remaining $75 million has been earmarked for the $2 billion KKR Energy Income and Growth Fund, which targets unconventional gas and oil resources in North America.

"Developments in North American gas and oil are profoundly changing both global energy markets and markets within North America," Matt Whineray, general manager for investments at NZ Super, said in a statement.

"For example, there is a large and ongoing decline in the burning of coal in the US as energy utilities transition towards gas supplies. Access to these opportunities is, however, difficult to achieve solely through listed markets. Partnering with KKR will give us the benefit of their expertise and deep relationships in the energy sector."

The investment follows a $100 million commitment to Bloom Energy, which uses solid oxide fuel cell technology to create power, and $55 million commitment to wind turbine manufacturer Ogin.

ICF International, a consultancy that focuses on the energy, environment and infrastructure space, estimated in 2012 that developing the resource and delivery infrastructure for the exploitation of natural gas resources in North America would require $2 trillion in upstream investment between 2011 and 2035.

NZ Super had NZ$25.5 billion ($21.8 billion) in assets under management as of February 2014 and has delivered a 9.57% average annual return since its inception in 2003.

At the core of its investment strategy is a reference portfolio, a shadow portfolio that provides a benchmark appropriate to the fund's long-term aims and associated risk profile. It allows the fund to make investments outside its framework when markets diverge sharply from underlying fundamentals.

NZ Super's private equity allocation is 3%, with a further 6% in property, 5% in timber, 4% in infrastructure, 1% in rural farmland and 3% in other private markets investments.

The private equity program is six years old and made its earliest commitments to fund-of-funds managed by HarbourVest Partners and Adams Street Partners. NZ Super took on an advisor relationship in 2009 and began making direct commitments to PE fund managers. It invested NZ$43 million in KKR Asian Fund, a 2007 vintage vehicle with a corpus of $4 billion.

"We will increasingly use private equity managers where we don't have in house capabilities so I would expect more emphasis on managers for non-Australasian investment, but it depends on what opportunities come down our research pipeline," Fiona Mackenzie, head of investments at NZ Super, told AVCJ last year.

The pension fund has also begun to dip its toes in co-investment deals. The fund has completed one transaction in the domestic market and operates a co-investment vehicle in China with two counterparts. However, capacity is limited by the small team size and its relative isolation in New Zealand.

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• Topics
• LPs
• Infrastructure
• Australasia
• North America
• New Zealand Superannuation Fund
• New Zealand
• LPs
• energy
• KKR
• USA