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Failed cable project 'too risky' for Super Fund

Pacific Fibre, which has pulled the plug on plans to build another international telecommunications cable linking New Zealand with the rest of the world, was too risky a proposition for the New Zealand Superannuation Fund to invest in.

The fund undertook extensive due diligence on investing in Pacific Fibre but was "unable to gain enough confidence in the opportunity for our purposes," a spokeswoman told BusinessDesk in an emailed statement.

"Any investment we make needs to generate sufficient returns for the risk we have to take on, relative to other investment opportunities both domestically and internationally," she said.

Pacific Fibre shut up shop after it failed to attract the $400 million it needed to fund the project, leaving Southern Cross Cable the only international cable network operating in New Zealand.

About 2%of the fund's $18.3 billion in assets was held in private equity, with a further 9.6% in infrastructure assets, as at May 31. To bankroll the Pacific Fibre project, the fund would have needed to allocate about 2.2% of its assets to the company.

Paul Brislen, chief executive of lobby group Telecommunications Users Association New Zealand, said he was surprised the NZ Super Fund didn't take a stake in the fibre company, given its long-term outlook and potentially steady rate of return.

"This is exactly the kind of project pension funds want to invest in," he said. "Long-term infrastructure projects are good for New Zealand as a whole."

Mr Brislen added, "While I understand that a national superannuation fund must indeed be risk averse, there seems to be room to consider the tremendous growth in demand of broadband services, what impact that might have on international capacity demands and just how much revenue that growth will deliver in a market where there exists today only one operator.

"There was no requirement for the fund to bankroll the entire Pacific Fibre operation, that would indeed have been too much, but surely a shareholding would not have been remiss?

"The Australian pension fund saw the benefits to it – I wonder how the Aussies work out their risk profile with such investments."

The project attracted a local who's who of investors, including Trade Me founder Sam Morgan, Warehouse's Stephen Tindall, Xero boss Rod Drury and early Facebook investor Peter Thiel.

Chairman Sam Morgan says the board believed it would be able to attract funding as it was a long-term infrastructure investment.

"We feel like we've done everything we can to succeed and we are all hugely disappointed that we have not managed to get there." 

Comments and questions

2.1% of the funds assets?

We're they being asked to fund the whole thing?

Yes it does sound like it. Seems like a lot of people liked the idea but no one was willing to put up the money.

Mmm. If they were asked for the whole lot,I agree with their decision. If asked for only10-20% that's a bit different.

i would like to know why they have invested in transpacific industries a dog and not the internet linr

Wow i had a feeling that woujd happen im guessing the govt want keep us on slow net speeds. More reasaon to move over seas

*sigh* When the Gov. created this "pot of dough" requests like this were very predictable and inevitable, and they will not stop.
If a scheme is feasible, would the schemes promoters please go to the bank and ask for a loan, or go to the private individual and ask him/her to invest.

NZ super were using Marko Bogoieveski as their "expert advisor" a former TNZ CFO who has limited if no international experience in understanding international infrastructure projects such as this, let alone international trends and market dynamics specific to the submarine cable industry.

That coupled with the strong possibility that as a former exec of TNZ may still have equity - how is that for conflict of interest?

that is rubbish

oh really? Check it out for yourself then - or get the media to discover who was advising NZ super on that deal

Sam Morgan is worth HOW much and still wanted someone else to fund the whole thing?

Sam Morgan and His Gang - All Show....NO GO! Someone grow a pair.

Sam and the boys were simply way, way out of their depth and with no influence whatsoever at government level. A good lesson for them.

Id consider REANZ's 91mill to be close to govt level....

Appears so, they were well short of the line.

I'm not a defender of the Southern Cross Cable monopoly or anything like that, but the price they set ISPs is tiny. It's something like 4-6 cents per GB. Does that explain why my broadband costs $70/month and not $20? Not really. It's very hard to see how PF were going to make back their $400m....