Morrison & Co, Craigs' social infrastructure fund may target Australia

By Gareth Vaughan

The New Zealand Social Infrastructure Fund's (NZSIF) manager hopes to make its first investment within six months and may invest across the ditch in Australia as well as domestically.

Peter Coman, managing director of Morrison & Co's Public Infrastructure Partners Limited Partnership or PIP Fund which NZSIF will invest through, told interest.co.nz he was currently looking at a couple of projects as potential investments. Coman declined to name them, but said they were public-private partnerships already operating.

"We'd like to think we could get a transaction away in the next six months, but it'll really depend on how successful we are in bidding for those projects," Coman said. "There's competition in both the projects we're looking at."

NZSIF's investment manager Morrison & Co and administrative manager Craigs Investment Partners announced on Monday the initial public offer of shares in the NZSIF had secured NZ$41 million in commitments to the project from about 750 investors.

On top of this the New Zealand Superannuation Fund has committed NZ$100 million and has the option to increase its initial investment in the PIP Fund before October 29, 2012 to a maximum of NZ$200 million.

Morrison & Co, best known as manager of NZX listed infrastructure investor Infratil, is talking to institutional investors and is hopeful these discussions will see total capital committed to the PIP Fund rise to NZ$160 million. And ultimately Coman said although there was still a lot of work to be done, he was confident of raising more than NZ$200 million by the time the capital raising process closes in October. Aside from the Super Fund, other investors so far include private investors, community groups, Craigs Investment Partners and charitable trusts.

The investors have bought shares priced at $1 each with the minimum investment level set at 20,000 shares. Of the issue price, only 10 cents is paid up front at the time of application with the remaining 90c paid in tranches when called by NZSIF's board. Although NZSIF won't be listed, Craigs Investment Partners will run an order matching facility to offer shareholders the opportunity to trade.

"Because it's a retail vehicle the board has decided they will take 10c as part of the initial offer and they will manage that 10c. We will call a little bit of that money as we need it for our working capital requirements and then we'll only call additional money from investors when we have deals to invest in," said Coman.

NZSIF, through the PIP Fund, will invest in public-private partnerships that provide social infrastructure assets such as schools, hospitals and prisons. Coman said this could also include roading projects or water and waste water projects where NZSIF/PIP weren't taking on the economic risk associated with those types of assets.

Notably the projects Treasury's National Infrastructure Unit is planning will be targeted. These include the country's first public-private prison to be built at Wiri and schools. The PIP Fund may bid for projects as part of a consortium.

Aside from New Zealand, Coman said PIP can also invest in Australia with the approval of its investor advisory committee. The committee comprises representatives of PIP's largest limited partner investors including Super Fund and NZSIF representatives. The NZSIF board is chaired by former Waste Management managing director Kim Ellis. It also includes former Beca Group executive director Ian Fraser as an independent director, Craigs Investment Partners' chairman Neil Craig and head of debt capital markets Mike Caird.

Each share held by NZSIF investors consists of one ordinary voting share and 100 non-voting redeemable preference shares valued at one cent each. NZSIF will aim to earn interest from cash held on deposit, and receive dividends - with imputation credits where possible - and distributions from the PIP Fund once investments are made and the assets become operational. NZSIF could also receive capital gains if the PIP Fund divests investments. Capital will be returned through redemption of the redeemable preference shares.

The initial term of the PIP Fund is 18 years running until October 29, 2027. NZSIF is targeting an Internal Rate of Return over the term of the PIP Fund of 11% per annum before tax, but after all costs, investment management and administration fees and expenses. The PIP Fund itself won't take on debt but Coman said at the project or deal level it could take on non-recourse funding.

Coman is also chief executive of Morrison & Co Property Group. He has overall accountability for the development and performance of infrastructure assets within the PIP Fund. Before joining Morrison & Co in 2008, Coman was managing director of Jones Lang LaSalle, New Zealand. Morrison & Co shareholders and employees will collectively commit to invest at least NZ$2 million in the PIP Fund.

Morrison & Co, as investment manager, will be paid an annual base management fee that's no less than an amount equal to 0.8% of committed capital. It may also be entitled to an annual performance fee of 20% of the returns generated by the PIP Fund in excess of a benchmark return. Craigs Investment Partners, as administrative manager, will be paid an annual fee of 0.25% per annum of the opening value of NZSIF for an accounting period.

A full copy of NZSIF's prospectus is here.

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