Failed cable project 'too risky' for Super Fund
BUSINESSDESK: 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."