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NZ has proved a “fertile ground” for Federation Asset Management, according to its head of distribution, Cameron Farrar. In the country recently on a client and prospect tour, Farrar said NZ wholesale investors make up about 20 per cent of the Federation Alternative Assets II (F2) fund, the firm’s flagship private equity vehicle. He the sustainable focus of F2 has appealed to NZ investors, who are increasingly comfortable with private equity structures. “There’s a lot of good Kiwi private equity managers who have educated the NZ market,” Farrar said. But the fund itself primarily holds Australian assets with a big tilt to renewable energy infrastructure – batteries and wind farms, in particular – as well as health, childcare and financial services. “We’re less keen on solar,” he said, citing the difficulties of matching the intermittent grid supply across multiple time zones over the continent. And NZ renewable energy, somewhat surprisingly, falls outside the Federation ambit, too – mostly because the country is so well-advanced in clean electricity production via its hydro-power capabilities with no large-scale projects that fit the investment thesis. Geothermal energy, a burgeoning area of development in NZ, while interesting, also remains too niche for the Federation style. By contrast, Australia has embarked on a huge effort to build renewable energy infrastructure, creating opportunities for the private equity sector to supply capital at various stages. For example, in April this year F2 invested into Ascera Energy, which specialises in battery storage systems that help stablise supply from sources such as solar and wind. Clean energy might be the obvious sustainable selling point but Farrar said the manager targets assets in other sectors, too, that also meet the philosophical goal of making “the greatest net positive difference to society”. The definition is broad enough to include the now US-based logistics firm, FAST, which began life in the Federation portfolio as an Australian company. FAST is now four-and-a-half times larger than when F2 bought into the business in 2018, he said. Regardless of any ESG overlay, Federation is still a private equity fund with all the liquidity, valuation and other risks associated with the asset class. The Australian unit trust fund, available to NZ wholesale investors direct or through advisory firms on the FNZ and Apex platforms, also carries a 2.75 per cent annual fee. F2 has a target annual return after fees of 15 per cent. Despite the Australian bent, Federation keeps a close eye on potential investments on this side of the ditch as well, especially in financial services. “We’ve had a look at advice firms and also in KiwiSaver-related businesses,” Farrar said. “We like sectors with regulatory tailwinds.”
