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Green Investment Fund targets will depend on portfolio - Treasury

Friday 21st June 2019

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The government’s $100 million Green Investment Fund isn’t targeting an overall rate of return, but will instead weigh up each investment on an individual basis.

Treasury deputy secretary Struan Little told Parliament’s finance and expenditure select committee on Wednesday that the department had supported the government’s plan to get the fund up and running, and that it was now incorporated as a company.

He said he wasn’t aware of any work being done on returns, or an acceptable discount, given the focused nature of the fund.

“We’ll, of course, be particularly interested in its returns, but that’s a matter for the future,” he said.

Chief economic adviser Tim Ng said the ultimate returns will depend on the portfolio, but agreed with Act Party leader David Seymour, that all things being equal, “you would expect if you have a smaller slice of the market portfolio than otherwise, you would expect a higher risk or lower return – some combination.”

Seymour has in the past criticised the fund as corporate welfare, saying it will be picking technologies that can’t attract capital in an open market.

The fund was a commitment in the Labour and Green parties’ governing arrangement and will focus on investing in decarbonisation outside renewable energy, which already forms the backbone of New Zealand’s electricity generation.

It has a benchmark of the five-year government bond rate plus 2 percentage points. The yield on the five-year rate was recently 1.22 percent, implying a hurdle of around 3.22 percent.

Ng said the fund will have the usual choice of benchmarks to measure the fund’s performance, and to help make conscious choices about the investments that will be in the portfolio.

“The whole point of having a fund like this is that it’s a new area of investment and that by definition the types of investments the fund might be looking to invest in are not the ones that are particularly deep and liquid,” Ng said.

“The choice of benchmark is quite important.”

National MP Andrew Bayly, who helped found the Cranleigh merchant bank, also questioned the lack of a targeted return, saying it was very unusual not to have very clear investment parameters and objective.

Little said it’s up to the fund’s board to determine what the returns are, and that will depend on what’s included in the portfolio.

"Portfolio choice will in turn influence expected returns through time,” he said.

A Treasury spokesman told BusinessDesk after the hearing that the fund will be fully operational next month, and that the required rate of return on each transaction will be assessed on its risks.

Budget documents show delays establishing the fund meant $2.5 million was expected to be spent on setting it up in the June 2019 year instead of the $4 million initially allocated. Some $2 million of funding has been pushed out into the 2020 year, with a $500,000 underspend in 2018.

Some $6 million has been allocated to cover annual operating costs, and $40 million is budgeted for investments in the June 2020 year, followed by $20 million injections in each of the following three years.

New Zealand Green Investment Finance - the incorporated entity - is chaired by professional director Cecilia Tarrant, who is joined by former banker David Woods. Living Earth founder Rob Fenwick was named an ambassador for the fund.


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