New Zealand has an opportunity to attract global investors by offering regulatory stability amid global uncertainty.
Morrison CEO Paul Newfield emphasises the need for high-quality relationships, resistance to populism and bold infrastructure projects.
Morrison hosted an Infrastructure Investment Summit to showcase New Zealand, highlighting the importance of scale and innovation.
New Zealand has a real opportunity now to grab the attention of global investors alarmed about new regulatory uncertainty in previously safe-bet countries like the United States, Morrison chief executive Paul Newfield says.
The head of the New Zealand-founded global infrastructure investment manager says infrastructure investors seek reliable cash yield and investments that grow steadily in value and so they prize regulatory stability and certainty.
“New Zealand has a real opportunity right now – when that’s in short supply in the world – to be offering that, and getting people’s attention,“ Newfield says.
“I feel this is the window to get that focus from global investment. It feels like what people have taken for granted globally, [which] is clearly after a few decades going in one direction, looks to be reversing.
“In a lot of markets, you’re now seeing more regulatory uncertainty because of the rise of populism. The one example everyone’s focused on right now is the US, where the rules are changing rapidly.”
Newfield cites the recent example of a critical permit for an offshore wind farm planned near the New Jersey Shore in the US being invalidated by an administrative appeals board, just seven weeks after President Donald Trump reportedly declared he hoped the project was “dead and gone”.
Billions of dollars had been invested in developing the project, Newfield says. “Those things terrify infrastructure investors. But it’s not just the US. If you look at the UK, which used to be the gold standard for stable regulation, water sector regulation has got more and more difficult and onerous and you’re seeing really big water utilities on the verge of going broke.”
Newfield says the Canadian, North American, European and Asian pension funds that traditionally invested in these sort of utilities are now looking for a safe haven.
“Ideally, New Zealand would be that. We’re not there yet. We’ve got that opportunity if we grab it.”
So what does New Zealand have to do to pursue this opportunity?
Three things, Newfield says.
It needs a small group of “really high-quality people” to have relationships with these investors and bring their attention to New Zealand.
“That’s number one, which is in Government control.
“The second thing in Government control is making sure we do look like that safe haven, which means New Zealand continuing to be resistant to populism stuff.
“As much as it might excite some voters, if you announce regulatory reviews of every single sector and look like you’re beating up all the big businesses, that’s exactly what scares away new capital.
“The third thing is actually starting to deliver that infrastructure project pipeline, and I think the Government could be much more bold in that area.”
Newfield cites the New South Wales state government’s infrastructure achievements including light rail, the metro system and stadiums in Sydney in the past 15 years.
“Kiwis are always jealous when they see all of that and ask how NSW did it? Actually, politicians came out, were reasonably brave, had some vision and said ‘here’s all the new stuff we want to deliver for you and by the way to fund that, some of it might need some private capital, and we might have to sell down some things’.”
New South Wales found citizens were “really rational” about the recycling of capital, he says.
“They might not like the idea of selling the Crown jewels but they want new jewels. You talk about what you are going to deliver and the new stuff you’ll create and then explain rationally to people that might mean you need some private capital, that you don’t need to own 100% of everything you own now. You let people make that choice as voters.”
Newfield particularly likes how New South Wales freed up millions to put into infrastructure by giving the private sector a long-term concession to run the state’s land and property titles registry. He’d like to see that sort of innovation here. Citizens didn’t really care about who owned the registry as long as it did the job well, he says – which the private sector tends to.
Scale and cashflow
Morrison, a global infrastructure leader founded in New Zealand in 1988, manages NZX-listed infrastructure company Infratil, which is the largest private infrastructure investor in this country.
Headquartered in New Zealand, Morrison has more than US$25 billion of assets under management across private and listed markets, with offices in Europe, US, Asia and Australia.
Infratil chief executive Jason Boyes says scale and cashflow are investment themes top of mind for investors right now.
“Probably one of the main things New Zealand needs to solve to attract international investment is developments that either have scale or have the ability to scale – businesses that can build renewable energy or data centres or a stream of road projects.”
Infratil chief executive Jason Boyes.
So how can a small country build scale?
“I think we have to bundle things up as much as we can. I also think New Zealand businesses sometimes don’t focus enough on growing larger in Australia before they go global. As a result, it takes them longer to accumulate scale,” Boyes says.
Infrastructure Investment Summit
Morrison took a leading role in showcasing New Zealand at the Infrastructure Investment Summit in Auckland in March, attended by global investors worth a combined $6 trillion.
It hosted a pre-summit meeting to introduce the country and players like KiwiSaver funds and the New Zealand Superannuation Fund to the visitors. Newfield says this served as “a nice warm-up, particularly for the investment pension funds that aren’t looking to turn up and buy 100% of something and exclude the locals but operate on a partnership basis”.
He said the broader summit made him “really proud”.
Newfield heard multiple comments from international investors that it was a unique experience to have senior New Zealand leaders turn up to tell the country’s story.
“The most common comment was ‘it was amazing that the Prime Minister actually stayed in the room for two days and wanted to get to know us and ask us questions’.
“New Zealand needs to deliver the opportunities at scale. There’s a lot of follow-up we need to do with those people ... keeping them informed, keeping New Zealand at the front of their minds.
“I think the Government can do some of that as well.”
Infratil’s Boyes says his feedback is that summit attendees looked forward to a repeat event to continue the work started in March. Ideally, he says, actual deals could be done at the next one, to build a pipeline of agreements.
Boyes says it was evident “capital is moving quite quickly to where they perceive safety”.
So how is New Zealand viewed by international investors?
Newfield wryly responds that the challenge is to get them to think of New Zealand at all.
“There’s some work for us to do to get them to focus ... they like the fact that we have governments which come and go but the general settings remain consistent.
“And that’s a really important message in the current world where there’s so much polarisation. Unfortunately, they don’t see us as innovative or fast-moving.”
While too much red tape is a popular complaint of Kiwis, Newfield says areas like the Resource Management Act (RMA) have made it too slow and hard to build new renewable energy infrastructure, for example, but the Government is addressing the problem through RMA reform and the Overseas Investment Act.
“When we invest globally, in every country you have to go through foreign investment approvals. It’s just a fact of life.
“If anything, countries are getting stricter on protecting their strategic assets. Things like telecommunications networks and critical data centres, less physical infrastructure and more digital.
“I think New Zealand can and should care about who owns these things. But what we can also do is make the overseas investment approval process a lot more streamlined and clear. Clear about the timelines in which we make decisions, clear about the criteria by which we make those decisions.
“I think they’ve made a lot of progress. We just went through an OIO [Overseas Investment Office] process for an Australian client investing in New Zealand. It was much faster than we expected.”
Newfield says he’s unsure if Morrison will participate in the Government’s upcoming private-public infrastructure partnership pipeline, as many of the projects are likely to be too small for its investors. “But we’ll be staying close to it and if there are opportunities of scale, we’ll get in there.”
While Infratil’s latest major investment focuses are in renewable energy projects through Manawa Energy (this month cleared by the Commerce Commission for acquisition by Contact Energy) and international data centre developments through its CDC Data Centres, Infratil has plans for its healthcare interests and is eyeing other opportunities to innovate, Newfield says.
“We’d love to bring some innovations to New Zealand. For example, in some of the work we’re doing in healthcare, where we own radiology clinics and diagnostic imaging.
“We’re seeing a real opportunity to transform how healthcare works. So instead of having to invest billions and building massive hospitals in city centres, you could use diagnostic imaging clinics around the country so it becomes really easy to get a scan.
“Using what’s called tele-radiology, you’d have those scans read by specialists to get much quicker responses to those patients and take the volumes out of a clogged-up public health system.
“I’m really interested in these kinds of 21st century ideas, rather than just ‘can we build more roads?’.
Newfield‘s particularly keen on the idea of cashing up public registries to free up funds for infrastructure for better social outcomes, citing the case of the Victorian Government which “blew hundreds of millions of dollars on failed IT projects” to fix its motor vehicle registry.
“It then offered the private sector a 40-year concession to run the registry, which yielded up to A$7 billion [$7.6b] and solved the IT problems.
“It’s a great example of government innovation, taking something from being a government problem to being a source of capital that can be put back into building new stuff.”
