The Crown-owned NZ Super Fund wants aboard the Government's $6 billion Auckland tram project.
Acting Chief Executive Matt Whineray said: "The Government has signalled its intention to accelerate core infrastructure investment in a number of areas. We consider the Auckland Light Rail network to be an infrastructure project of sufficient scale and significance to be an attractive prospect for investment. We wish to explore whether a NZ Super Fund-led consortium leveraging our international relationships can fund and deliver the project, on a fully commercial basis."
Transport Minister Phil Twyford and Finance Minister Grant Robertson announced the deal.
"Last month, the Government received an unsolicited proposal from the New Zealand Superannuation Fund, which proposed they would form an international consortium to design, build and operate Auckland's light rail network," Twyford said.
"The Government will not be commenting further on the proposal other than to say that we welcome the strong interest in light rail and acknowledge that any investors will require a reasonable commercial return. The procurement process agreed by Cabinet will review all other proposals in the same way as the Super Fund's proposal is assessed.
"It's good to see that investors recognise this project will be a game-changer for Auckland commuters and the first step in tackling Auckland's ever-increasing congestion."
The fund said it had identified as its potential partner CDPQ Infra, a wholly owned subsidiary of Caisse de dépôt et placement du Québec (CDPQ) responsible for developing and operating infrastructure projects.
"CDPQ is one of Canada's leading institutional fund managers with USD238.2 billion in net assets, and has extensive experience in infrastructure development and investment globally. CDPQ Infra is responsible for developing, building and operating Montreal's 67-km light rail network. Other members could potentially be added to the consortium," the fund said.
The Kiwi fund already has 2.6 per cent of the value of its total portfolio invested in infrastructure, as at June 30 last year. That amounts to $5b of its $38b investments.
If an agreement is reached between Government ministers and fund chiefs, the organisation which helps pay for our national superannuation would become an active party to a huge New Zealand transport project.
The fund was headed by Adrian Orr who has become Reserve Bank governor.
Across the Tasman, infrastructure assets are an important part of the Future Fund.
For example, in 2012, the Future Fund announced an agreement to buy the assets of one of that country's largest infrastructure businesses - Australian Infrastructure Fund - for A$2b, giving it stakes in airports in Queensland, Perth, Darwin, Alice Springs and elsewhere.
Two years ago, the Future Fund was in a consortium with others which bought a 50-year lease of the Port of Melbourne, saying this added considerably to its infrastructure assets.
The Australian sovereign wealth fund says it is investing "for the benefit of future generations of Australians".
The Kiwi fund is a relatively passive infrastructure investor, holding stakes in businesses including Metlifecare, Z Energy and Kaingaroa Timberlands.
If it hopped aboard Auckland's two-tram project, that could see the fund taking on the potentially far more risky role of a development business.
The Herald has reported the Kiwi fund wants to build, own and operate the two tram projects the Government has proposed: one from the CBD to Māngere and the airport, the other a northwest line running from he CBD beside the Northwestern Motorway to Westgate and eventually Kumeu.
No agreement has been reached.
Cameron Bagrie, managing director of Bagrie Economics, backed the fund's pitch for the $6b twin-tram project.
"It'll need to satisfy the fund's return expectations but it seems a logical use of the local savings pool," Bagrie said.
New Zealand had many demands for investment and transport was a key area, he said.
However, the country was stuck without access to large amounts of capital for big projects such as the trams.
"That investment or savings gap (deficit) was around $6 billion last year. We typically plug that hole by borrowing offshore," he said.
"That gap is not as bad as it has been because New Zealand has lifted its savings performance and the Super Fund has been a key reason for that," he said.
Continued improvement in savings performance and access to capital from organisations such as the Super Fund would be critical if New Zealand's investment needs were to be met.
"As a long term investor, infrastructure assets are a natural fit with the super fund," he said.
"Of course there is no free lunch. The super fund will rightly expect an appropriate rate of return on their investment."
Retirement policy expert Michael Littlewood said he groaned inwardly at the news the Super Fund wanted to fund two new light rail networks.
He said light rail had a reputation for never finishing on time, cost over-runs and not making money unless it was subsidised by the taxpayer.
"Is this going to add to the security of New Zealand's future payments of New Zealand Superannuation? I would have thought not."
Littlewood said the Super fund was taxpayers' money and if the rail was going to be paid for by taxpayers it should be done so directly.
"I'm not sure what the Super Fund adds to this process."
Littlewood who co-authored a report last year that called for the fund to be dismantled, said private investments such as this would make that harder to do.
He questioned why a private firm was not knocking on the door to build the light rail.
"Why hasn't this been done privately if it is such a good idea?"
Susan St John, director of Auckland University's Retirement Policy and Research Centre, said: "The question is whether this is the kind of investment that will enhance the ability of the economy to be better prepared for the pressures of an ageing population."
"If it is, and a proper independent cost benefit analysis is satisfied, then investing some of the fund may be a justified diversification. Whether the fund should also deliver the project on a fully commercial basis is more debatable.
"It is hard to say more ... we don't have the information, but it is not their core business."
Auckland tram project
• $6b twin-line city/suburban project
• One line CBD-airport
• Second line CBD-Westgate and eventually Kumeu
• Announced by two Government ministers at 11am today
• NZ Super Fund wants to build, own, operate both lines
Sydney tram project
• 12km new line under construction
• 19 stops being built
• 60 new Citadis X05 tram units to run
• No overhead wires on 1.6km George St section