Case study by Christian Super
Operating since 1984, Christian Super is a not-for-profit Australian industry superannuation pension fund. It applies Christian stewardship principles to the retirement savings of over 18,000 members representing US$600 million in assets.CalPERS has approximately US$1.2 billion invested in the alternative energy sector through its Alternative Investment Management (AIM) program. These investments are made in private equity, usually venture capital, and are spread across hundreds of companies. The majority of these companies are in the biofuels and solar sector (22% and 21% respectively). The rest is invested in wind, building and energy efficiency, biomass and waste.
Christian Super’s members invest in the fund partly because of its values – they hope to make a positive social contribution to society as well as earning a commercial financial return for their retirement. In order to fulfil this mandate, Christian Super has made a number of investments creating a positive social and environmental impact. Moreover, these investments help Christian Super fulfil its fiduciary duty by providing ways to gain diversification to improve the risk/return profile of the fund.
Its first such investment was in the clean tech field. The investment was structured as a private equity fund of funds, with a value of US$25 million. The overall performance of this investment has been better than the average private equity fund in the sector although it has not proved to be the diversifying investment the fund had hoped. This is because in the extreme circumstances of the financial crisis it ended up being more closely correlated with global equity markets and therefore a less effective hedge against equity downside than expected. Currently clean tech accounts for 3% of the fund’s total assets, all of which are located outside Australia.
The Australian clean tech market is difficult. With other cheap sources of energy, renewable energy has struggled to meet performance targets. Many of the efficiency technologies have gone offshore for commercialisation.
However, the Australian government this year put forward its plans for a US$10 billion ‘green bank’, the Clean Energy Finance Corporation (CEFC), which it hopes will catalyse private sector investment and provide a pathway for institutional investors to invest in renewable technology. The fund says government indications that it may accept below market rate for its portion of the investments could bring on board institutional investors willing to take up the potential risk in expectation of receiving any excess returns. However, the access to cheap clean coal in Australia makes the development of the clean tech market difficult.
The fund has also invested in the area of microfinance. Its first investigations date back to 2008 when microfinance was moving from being a capital returns only investment to more commercial rates of return on successful projects. The fund has made two allocations so far: an initial US$7 million in 2009 and a further US$5 million in 2010. Both exposures are hedged back into AUD to protect against volatility. The end beneficiaries of both those investments are clients of microfinance banks around the world. Over half of the ultimate beneficiaries are women, and between 40% to 50% are in rural areas. The clients use the money primarily in microenterprise across a diverse range of industries – from farming and agriculture to clothing, small hardware or tourist shops and small goods manufacturers.
Christian Super has also been a pioneer in quasi public/private investment structures. It became the first Australian superannuation fund to put money into a fund with a Community Development Finance Institution (CDFI) when the government announced the development of a new social initiative where it would match dollar-for-dollar, any externally invested capital, and take the first hit on any investment risk.
The deal is one of three such joint ventures in Australia. The total pool of capital across these three funds is US$40 million, of which US$20 million is granted from the government and US$6 million invested by Christian Super. In the short term it expects returns of around 4.5%, rising to 6.5% as the projects mature and the interest rate cycle comes out of its trough.