Investment Selection
Southern Cross runs a robust investment selection process. Every investment runs through a 7-stage Investment Committee process. In addition, investments must pass the Infrastructure Eligibility Test at both the Initial Investment Committee and Final Investment Committee.
I: Investment Committee Process
Stage 1: Deal Sourcing
Deals are sourced directly and through brokers, bankers, financial institutions, and owner-operators, after which they undergo preliminary due diligence. If given a green light by the Managing Partners, investment partners are presented with a brief summary of the deal.
Stage 2: Underwriting and Investment Memorandum
The next step is the preparation of an underwriting and investment memorandum. This involves review of the Asset data, including historical financials, budget, capital expenditure schedule, sponsorship experience, and market data. A site visit and tour of comparable assets is also conducted.
Stage 3: Initial Investment Committee
The Investment Committee consists of the four Managing Partners, together with any additional members the General Partner may appoint from time to time. The deal must pass the Infrastructure Eligibility Test and receive unanimous approval to proceed. If approved, a letter of intent or term sheet is sent to the seller, which triggers initial negotiation to establish final commercial terms.
Stage 4: Deep Due Diligence
In parallel to the establishment of commercial terms with the vendor, deal due diligence is conducted, including verification of all information provided and a review of market conditions through broker and stakeholder conversations. This is also the stage third-party reports are ordered (environmental, structural, legal, valuation) and where warranted, technical and engineering or architectural review.
Stage 5: Final Investment Committee
The Investment Committee meets prior to the conclusion of due diligence or the non-conditional date to give final approval. The Committee reviews the final investment memorandum, including a technical advisory report on the investment (for example a marine engineer assessment for marinas) and re-assesses the investment against the Infrastructure Eligibility Test.
Stage 6: Investment Closing
Closing is closely managed by external legal counsel and the deal team leader. Closing and funding is directed by the outcome of the Final Committee decision. A plan is put in place to transition the deal from the deal leader management to the selected asset manager.
Stage 7: Asset Management
As part of ongoing asset management, the Investment Committee reviews all investment performance on a quarterly basis. A designated team asset manager monitors investment, loan, and market performance using an in-house surveillance system for each deal. In addition, the asset manager manages any issues or counterparty requests. Investors receive quarterly reporting.
II: Infrastructure Eligibility Test
In order to receive investment from Southern Cross Funds, the investment must be (1) in an eligible sector, (2) form part of an operating business or structure that produces or post-investment will be capable of producing business revenue, (3) has an operational focus and (4) is a New Zealand entity that is AIP eligible. Each of these limbs is set out in more detail below.
1. Eligible Sector
The investment must be in one of the following sectors: infrastructure, including tourism, transport, digital infrastructure, health, education and public infrastructure, renewable energy, and aged care and retirement villages. These sectors align with Southern Cross Fund’s intention for compliance with New Zealand’s Active Investor Plus visa programme.
2. Business and Revenue Model
Southern Cross Funds invests into operating businesses or infrastructure projects that depend on real assets to deliver its service. However, we do not invest in pure residential, commercial or industrial real estate held for rent or capital appreciation. To this end, the Investment Committee must be satisfied that the contemplated investee’s business plan, customers, revenue model, and operating structure fit within our investment mandate.
3. Operational Focus
The Fund, directly or through the investee, must own or control the operation and bears operating risk, with the base case return being driven by operating performance (generation, occupancy, throughput, utilisation, tariff, etc). Where investment is deployed in part for development, such development will only be for the clearly contemplated purposes of expanding, or in some cases establishing, acceptable infrastructure operating businesses, and never for land banking or sale or lease on completion.
4. New Zealand Entity and AIP eligible
The Fund only invests in New Zealand Entities (the majority of its staff or its main operations in New Zealand, with New Zealand control, leadership or headquarters), where the Fund's investment is an unlisted equity or debt security in said entity, and the investment would not take the Fund outside a 70% New Zealand allocation. A specific AIP compliance memorandum is reviewed, along with advice from legal counsel if there is any ambiguity regarding the acceptability of the investment under the AIP programme.