21 Mar 2014

Super Fund invests in fracking

2:05 pm on 21 March 2014

The fund is putting the money in the global private equity fund KKR, which in turn will use it to finance what it calls conventional and unconventional gas and oil exploration.

The Super Fund says the investment in KKR will give it exposure to a sector that it's otherwise unable to invest in.

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Photo: AFP

Of the $293 million investment, $88 million will go into a new KKR fund focused on exploring oil and gas from shale resources, where fracking is a commonly used extraction method. The full sum is about 1 percent of the fund's total assets.

Shale oil and gas is more costly and less efficient to extract but its popularity has increased in recent years as the price of oil has risen.

The fund's general manager investments, Matt Whineray, says demand in this part of the energy sector is strong and it's a good investment for the Super Fund.

Mr Whineray says it's a good, long-term investment for the fund and both the fund and KKR are responsible investors.

"We take the environment social governance factors seriously when we think about investing. We've got a very strong investment criteria," he said. "First of all fracking is a developed industry and in the US there is a regulatory framework in place that is becoming increasingly stringent.

"Secondly we spent a lot of time in due diligence making sure that we could find a manager who had a similar approach to managing those risks as we do. We believe we've found that in KKR."

Mr Whineray says both will have similar measures for monitoring and managing risks.

He can't say what kind of return the fund might make on its investment, but he expects a return won't be made for at least five to seven years.

He says the KKR investment will be funded by the sale of some of the Super Fund's stake in global equities.

This is the Super Fund's third investment in KKR, which manages more than $US94 billion in assets