The NZ institutional investment and advisory markets are lining up for a rare injection of new capital as two city councils prepare wealth funds for take-off over the next couple of years.
As reported last week, the Auckland City Council is seeking board members for an approved, but not yet airworthy, ‘Future Fund’ scheduled to manage some $1.3 billion from the sale of its shares in Auckland Airport.
Meanwhile, earlier in July the Wellington City Council (WCC) posted two ‘request for proposals’ (RFPs) to offload its 34 per cent stake in the capital’s airport, and, establish a ‘perpetual’ investment fund to be seeded with an estimated $500 million from the sale proceeds.
WCC is considering the two RFPs as separate but interested parties can apply to carry out both functions.
Initially, the WCC fund design-and-build “workstream” will require “commercial advisory services” with investment advice and management duties to be added once a board is in place.
According to the fund development RFP, the Wellington Council has set a December deadline for “high level” options to be in place before more detailed construction begins.
The following phase will finalise the WCC fund “organisational and investment arrangements”.
Among other elements, fund advisers will need to set an “investment strategy, including an approach to responsible investment that delivers on objectives set by Council (this will include working along investment management advisory support, which will be separately appointed)”.
“The sale and fund establishment need to be completed by June 2026 (in the first two years of the LTP, or earlier), and the first milestone which has been confirmed by Council is the delivery of advice on a sales strategy and pricing by end of 2024,” the RFP says.
WCC approved the sale of the airport shareholdings in May about a month before northern counterpart voted in favour of the Future Fund with its remaining Auckland airport stake expected to go as a result.
Tory Whanau, Wellington mayor, told press at the time that the proposed fund could return about $6.4 billion over the next 50 years.
“We had to put political alliances aside and decided what is best for the city,” Whanau told media.
In long-term plan discussion documents, the Wellington Council notes the Auckland move as well as citing other local government bodies that “have successfully taken similar action to manage their portfolios and diversify their investments”.
“Examples are the New Plymouth District Council Perpetual Investment Fund, the Dunedin City Council Waipori Fund, and the Hawke’s Bay Regional Council Future Investment Fund,” the WCC document says.
“… It is important to be clear that the problem we have is a lack of diversification in our investments, not a problem with the quality of our investments. The airport shares have been a good investment for the city, with a return over the past 10 years of approximately 11 percent (made up of returns achieved through revaluations and dividend payments).”
The WCC has “assumed the [proposed] fund generates a 7 percent annual return, which is similar to returns achieved by other comparable investment funds, as well as the midrange returns of growth-focused KiwiSaver funds”.
In board recruitment material, the Auckland Council says the mooted Future Fund will have an unusually precise target annual return of 7.24 per cent.
The Wellington Council also expects its proposed fund “will have an investment focus on environmental, social and governance factors, subject to further advice from an investment manager”.
“Council will appoint a fund manager to invest in assets and grow the size of the fund according to the strategy put in place by Council,” the WCC planning document says.
NZX-listed infrastructure manager, Infratil, owns the remaining two-thirds of Wellington airport in a tranche picked up from the central government in 1998 for just over $96 million.
Then Prime Minister, Jenny Shipley, said in a statement at the time that “the purchaser is legally bound to ensure that at least 17% of the total shareholding in the company remains in New Zealand hands”.
“This condition will remain for as long as the Wellington City Council retains the whole of its 34% shareholding in the company,” Shiple said.
“If the city council should decide to sell any of its shares, then the 17% requirement would no longer exist.”