The New Zealand Superannuation Fund says it will invest up to US$250 million ($292 million) to take part in the booming North American gas and oil industry with US private equity firm KKR.
Up to US$175 million would be directed to new KKR energy private equity investments in North American natural gas exploration and production. The remaining US$75 million would be invested with the US$2 billion KKR Energy Income and Growth Fund - a new KKR fund focused on investing in the development of unconventional gas and oil resources in North America.
The NZ Super Fund's other energy sector investments over the past 12 months have included US$100 million in Bloom Energy, which uses solid oxide fuel cell technology to create power, and US$55 million in wind turbine maker Ogin.
The US energy market has undergone a revolution over the past five years and is on the way towards energy self sufficiency by 2035.
Improvements in drilling techniques and the controversial use of hydraulic fracturing, or fracking, has offered up vast and previously untapped reserves of oil and gas.
Cleaner burning gas from shale deposits is quickly replacing coal as the preferred feedstock for the country's power plants.
The NZ Super Fund's general manager investments Matt Whineray said responsible investment was a big part of the fund's mandate.
He said the fund carefully weighed environmental factors associated with this kind of investment and that KKR employed a similar approach.
Justin Reizes, who heads up KKR in Australia, said it had been estimated that US$2 trillion was needed to develop the US energy market from 2008 to 2035, which meant there would be substantial investment opportunities.
NZ Super Fund's investments follow extensive research into opportunities in the energy sector by the fund over the past couple of years.
"These new investments will broaden and diversify the fund's current exposure to energy, in line with what is a changing global energy sector," Whineray said.
He said KKR investment was premised on attractive long-term returns in energy and significant market changes including the rapid development of natural gas and unconventional oil assets.
Whineray said the move would allow the fund to be much closer in terms of its control and influence over the investment, as opposed to the more typical passive holding arrangement.
The $25 billion New Zealand Superannuation Fund invests globally in order to help pre-fund New Zealanders' future retirement entitlements.
KKR, formerly known as Kohlberg Kravis Roberts, is a multinational private equity firm.
Since its founding in 1976, KKR has completed a number of landmark transactions including the 1989 leveraged buyout of RJR Nabisco, which at the time was the largest buyout in history.