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Superfund: We Want to Invest in Affordable Housing

New Zealand Superfund: We Want to Invest in Affordable Housing

The New Zealand Super Fund chief executive Adrian Orr says the Fund is keen to be an active investor in New Zealand infrastructure, including providing capital to help build affordable housing. Speaking to Corin Dann on Q+A, Mr Orr said the Fund had invested in schools, prisons and other infrastructure already, and wanted to do much more – especially in the area of housing, and even social housing. “That’s one investment game here in New Zealand, and I would love to be able to do that,” he said.

“And we are very ambitious, and we’ve had the shingle out. We’re working with Ngai Tahu. We’re co-investing across there, and really we need access — good access to land, good access to the capability. We’ve got the capital, and we’re open for business.”

The Fund intends to divest from fossil fuel industries and measure its own carbon footprint while encouraging companies it works with to also factor in climate change.

“Consumers and investors are saying, ‘We want to know what you’re doing,’ and they don’t care whether you are the miner or you are the energy producer or the end consumer. They want to know how are you doing around efficiency and effectively financial stability. Are you still going to be relevant in 20, 30 years’ time?”

END




Q + A
Episode 33
ADRIAN ORR
Interviewed by CORIN DANN

GREG This week the $30 billion New Zealand Super Fund announced a new climate change strategy. It wants to get out of any investments in fossil fuel companies or businesses with high carbon emissions, describing these companies as a risk for any long-term investor. It'll be measuring its own carbon footprint in its yearly reports and working with the companies it does invest in to make sure they're taking climate change into account too. Chief executive Adrian Orr explained his plan in an interview with Corin Dann.

ADRIAN By the way, that’s what companies should be thinking about. It’s not necessarily like we’ve had an epiphany and suddenly thought of this. I mean, all companies should be thinking very hard. It is real. It is material. In 10 years’ time, 30 years’ time, society will be using energy differently and different energies. And that will affect either the regulatory regime that we’re in, it will affect the pricing regime for carbon and carbon emission. Well, there is no pricing regime that is sustainable at the moment, but there will be, I hope, because otherwise regulation will come through. Consumers and investors are saying, ‘We want to know what you’re doing,’ and they don’t care whether you are the miner or you are the energy producer or the end consumer. They want to know how are you doing around efficiency and effectively financial stability. Are you still going to be relevant in 20, 30 years’ time?

CORIN So what’s the flip side of this? Can you give us some examples of things that, technology, green technology you’re seeing that you will want to invest in? Electric cars, what is it that’s top of the list?

ADRIAN Yeah, there is a lot of good and new ideas. There’s kind of two forms. There’s one about current energies being used better and current energies being cleaned up. For example, we’re invested in LanzaTech. This is the New Zealand venture company. They are turning current pollution into useful energy and useful by-products that may be very revolutionary. I use the word ‘may’ because these are all new technologies. We’re invested in ClearView. This is a glass technology for buildings, and this is where you can effectively walk around, you and I can set our own shade, our own heat, our own light individually. This glass will be moving with you and so that suddenly you’ve got energy-efficient buildings and you’ve got a much better environment in the workplace. Transport is completely changing. You’re seeing cities, for example, in China that have been built cookie-cuttered off templates from the US, and now they’re relatively empty in the inner city because people aren’t commuting and parking cars and filling up their boots any more, so the roads and the infrastructure needs to be different.

CORIN Sure. There will be some people, though, who will say your core task is just getting a return on an investment to pay for the retirement of the baby-boomers and the others. You only managed 1.89% in the last year. Isn’t that where you should be putting your focus and letting the government worry about the climate change stuff?

ADRIAN Yeah, and I think that’s a great question. I think it’s a poor use of numbers, by the way. I mean, it’s taking your photo in a marathon. In fact, the year to date we’re up to just on 11% per annum. That’s 11, not 1.9%. You’re referring to an annual report number, a snapshot. We have averaged broadly about 10% per annum since the fund started, so we are one of the highest performing sovereign wealth funds in the world, so I feel I need to say that because the public only see what happens in New Zealand. They don’t see the rest of the world. With that, though, I totally agree. Our job is one thing only, and that is to maximise return without undue risk for the fund as a whole, and this strategy sits exactly in the line of sight of our purpose.

CORIN But aren’t those green technologies, they’re pretty high risk, aren’t they? I mean—

ADRIAN Yeah, some are.

CORIN Out of how many are going to come good?

ADRIAN Some are. Are they more high risk than, say, just investing in coal? It may be left stranded in the ground. This is the trade-off we have to make, and that’s why we have a diversified portfolio, some in traditional energies, some in alternative energies and across all industries globally. For us over the horizon that matters, over a 30-year horizon, we have to be thinking hard about, for example, forestry. Forestry is a fantastic, green, has all the right vibe going with it. It’s a big part of our portfolio. But what if climate change turns it into a negative rather than a positive? We can’t get water; the physical danger goes up; we can’t chop them down, because we can’t harvest them. So you have to take on board the impacts of climate change amongst many other things.

CORIN I wonder if we can talk about local investments. You have done some. You’ve dipped your toe into the housing area with an investment of, what, a couple hundred houses?

ADRIAN Yeah, yeah, and we’re doing more.

CORIN Have you got more in the pipeline? Because there’s obviously a clear need and money to be made in Auckland, isn’t there?

ADRIAN Yeah. I mean, the challenge with Auckland, of course, is the entry price of the housing, and sections and stuff is pretty rich.

CORIN You can’t build affordable housing, is that what you’re saying?

ADRIAN We are having our very best effort at building affordable housing, and, in fact, the development that you’ve mentioned that is well underway has a real effort to make sure they’re affordable, and that’s with a capital A, not the pretend affordable, is part of a wider mixed community amongst those groups. So entry homes—

CORIN But are we talking a $500,000 house here? What are we talking about?

ADRIAN Yeah, yeah, and also long-term rental, rather than just short-term rental agreements, so you can actually strike the contract that—

CORIN So you think there’s a big investor that you could go and build a large number of those affordable houses? Because that’s really where the game is at, isn’t it?

ADRIAN That’s one investment game here in New Zealand, and I would love to be able to do that. And we are very ambitious, and we’ve had the shingle out. We’re working with Ngai Tahu. We’re co-investing across there, and really we need access — good access to land, good access to the capability. We’ve got the capital, and we’re open for business.

CORIN Well, I know someone who needs some capital, and that’s Housing New Zealand. I mean, could you work alongside a department like that.

ADRIAN Yeah. The challenge with Housing New Zealand— Don’t worry, we talk all the time with all different government departments. Whether it’s transport, infrastructure, housing, social provision, we are investing in, I suppose, public-private partnerships. We’ve invested in schools, prisons. We’ve missed out on the roading on a couple of times. But with the social housing side, there’s two challenges there. One is by definition these are not about maximising a rate of return.

CORIN Sure.

ADRIAN These are about homes, and so we have to think about hard about how does that fit into the portfolio? The second bit, of course, is that one of the main missions of government policy is about saying where the houses are currently situated, is that where they’re currently needed? And so that’s a complex situation. We’re not invested in that space at the moment. We’re invested in the commercial side around people who are rent-paying, rent-seeking.

CORIN What about some big infrastructure projects? Will you be doing more investing in roading, Harbour Bridge crossings, these sort of long-term projects?

ADRIAN Yeah.

CORIN Are you going to commit to those?

ADRIAN If you know when they’re happening and where they are, I would love to be in the queue saying, ‘Please, we want to be involved.’ And we’ve made that very clear. In fact, we’re on national TV doing it again. We’ve actually set up for one of our key priorities this year an investment hub strategy, so we’re saying, ‘Folks, whether it’s, say, infrastructure, transport, whether it’s Maori use of their right of first refusal across lands or buildings that are currently underinvested or underutilised, whether we can be a disruptor in traditional value chains, say, in the fishing industry or the meat industry — $9 out of $10 spent on procuring processing, only $1 spent on marketing — can we bring capital, can we bring capability to those access points and be game-changers?’ But you need to have an open conversation. People need to be willing to talk with who they might perceive as their current competitors, and let’s do it on a global scale. We globally invest. We can plug and play in Australia. We can plug and play in the UK, Canada, the US, and we do. It’s very hard to plug and play at scale in New Zealand in investment.

CORIN And how much of a problem is the— we’ve got a situation with very low interest rates. You’re not getting a great return on just holding on to cash, are you, so how difficult is that? I mean, it’s a problem for all investors, isn’t it?

ADRIAN That’s right, and, in fact, that is the purpose of having low interest rates. Central banks around the world have said, ‘Look, stop hoarding your cash. Stop putting it under the mattress. Stop just leaving it in the bank. Get out and put it to work. Get out and invest.’

CORIN But it’s gone into asset bubbles, hasn’t it?

ADRIAN In some parts. In some countries you’ve seen some housing activity. That’s not just monetary policy, of course. That’s demographics. That’s supply side issues. That’s migration. You know, the Vancouver, Auckland, Sydney stories. More generally, consumer spending has been very low. You are now seeing it pick up. The US consumer confidence is actually very good. It is very good here as well. What we aren’t seeing is long-term business investment, long-term confident business leaders and long-term confident public leaders. There’s not a lot of borrowing to invest in long-term infrastructure globally, despite this massive capital infrastructure hole at the moment. The US—

CORIN So are you happy to be that investor of last resort, then, in New Zealand?

ADRIAN I’d like to be investor of first resort. By the way, yes, we are very happy if it’s last resort.

CORIN But should you be?

ADRIAN Uh…

CORIN What you seem to be saying is there should be more of that investment going; it shouldn’t just be you?

ADRIAN It should be businesses, and we should be working beside businesses. We can bring capital, but we don’t know how to run a trucking company or we don’t know how to, you know, so we need the capability to invest beside, and we need partners who are prepared to have long-term vision that we have and also come along with their environmental and societal and governance beliefs that we follow.

CORIN One last question — we’re now seeing surpluses return. We can expect some fairly large ones in the coming years.

ADRIAN Yeah.

CORIN Would you like to see the Government start to resume contributions to your fund? Is it time?

ADRIAN Yes, I would like to see the contributions, and by all accounts that is what is planned by the current government, saying we still seem to be in the missives coming from the Beehive, so that’s great and may that continue. Likewise, all other parties are saying that the super fund is an important part of social cohesion for this country.

CORIN Because there’ll be some competing interests for those services.

ADRIAN The current—

CORIN You’re looking at tax cuts. You’re looking at paying down other debt.

ADRIAN That’s right. Well, I try to sum it up like this, really. The current population always outcompete the future population for their needs, and so this fund is about trying to have some fair share. What’s that famous saying? What’s the future generation ever done for me? We’re here to try and talk on behalf of that.

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