NZ Super buys Kiwi Group stake for $180m

The chief executive of New Zealand’s sovereign wealth fund described the investment in the New Zealand banking group as a ‘rare’ opportunity.

The New Zealand Superannuation Fund, the NZ$31.6 billion ($22.6 billion; €20.6 billion) superannuation fund for New Zealand retirees, has acquired a 25 percent stake in New Zealand banking group Kiwi Group Holdings (KGH) from NZ Post from NZ$263 million, according to a statement.

Under the deal, Wellington-based Accident Compensation Commission also invested NZ$231 million for a 22 percent stake in KGH, bringing the total transaction to NZ$494 million and valuing the company at approximately NZ$1 billion. NZ Super and ACC are taking a slightly larger combined stake than originally proposed in April at a lower price because of the weaker mid-year financial performance of Kiwibank. KGH initially planned to sell 45 percent to NZ Super and ACC for NZ$495 million.

State-owned postal service NZ Post retains a majority 53 percent stake in Kiwibank and will use the proceeds to reduce debt and pay an estimated NZ$200 million special dividend to the Crown, NZ Post chief executive Brian Roche said in a separate statement.

“Investment opportunities of this size and potential are rare in New Zealand,” Adrian Orr, NZ Super chief executive, said in a statement.

In its 2015/16 annual report published on 21 September, Orr noted that the fund is “having to work harder to find investments opportunities” as asset valuations are fully priced and there is an abundance of capital chasing deals. He added in that same statement that the global investment environment is challenging and expects “overall investment returns to be on a low trajectory for some time”.

Orr said that he believes the investment in KGH will make an important contribution to portfolio returns over the long-term.

NZ Super, which allocates about 5 percent of its portfolio to private equity, saw its annual returns plummet from 14.6 percent in the previous year to 1.89 percent for the year to June 2016, due to weaker results from its equities portfolio.

NZ Super invests about 71 percent of its overall portfolio in global and New Zealand equities, 11 percent in fixed income, and 6 percent in timber. Infrastructure, public and private markets, as well as rural farmland receive a combined 9 percent.

The fund has more than NZ$4 billion in direct investments in New Zealand including forest management company Kaingaroa Timberlands, technology services company Datacom, and elderly care Metlifecare.

KGH is the holding company of Kiwibank Limited, Kiwi Wealth Management (which includes Gareth Morgan Investments), The New Zealand Home Loan Company Limited, Kiwi Insurance Limited, Kiwi Financial Services Retail Ltd and Kiwi Capital Funding Limited. The company has close to NZ$20 billion of assets as at June 2016 and serves more than one million customers.