The Devon View: how public markets can help finance our infrastructure deficit

July 2026

Patrick Washer, Portfolio Manager 

A growing pool of domestic capital

KiwiSaver was formally launched in 2007 and today has 3.4 million members, with savings totalling over $140 billion across nearly 40 scheme providers. Minimum employee contributions have recently increased from 3% to 3.5%, and the National government wants to increase them further in the coming years. New Zealand is therefore building a powerful private savings pool, and it is growing rapidly. We only have to look across the Tasman to Australia to see how large this pool could become. Australia’s more mature superannuation system, with compulsory contributions of 12%, has created an enormous source of domestic capital.

As these savings grow, those responsible for managing the funds have increasingly looked offshore for investment opportunities, allocating capital to markets such as the US and Europe. This is partly a consequence of the relatively stagnant New Zealand equity market. Since the three government-owned gentailers were listed in late 2013, relatively few new blue-chip companies have come to market.  But surely now an opportunity exists to leverage off this pool of domestic capital to address local requirements whilst also generating an attractive return.

A new model for funding infrastructure

A great example of how this could work in practice is the new Dunedin Hospital. In 2025, Simeon Brown signed the $1.9 billion construction contract to build the new hospital. The government clearly needs to provide the hospital to deliver essential services to the local community and teaching resources for the University of Otago Medical School. But does the government necessarily need to own the entire building once construction is complete? Assuming construction goes to plan, the property should be worth more than $2 billion upon completion, assuming a modest development margin. Once completed, the hospital could be sold into a publicly listed real estate investment trust (REIT), with the government signing a long-term lease to operate the hospital. The government could retain a controlling interest in the REIT, helping address concerns about being seen to "sell the family silver." The remaining interest could be offered to public market investors, raising potential fresh capital. That capital could then be recycled into the next much-needed piece of health infrastructure, with the process repeated over time.

As new assets are commissioned, the listed REIT could raise additional funds to expand its portfolio of public health assets, without diluting the Government’s ownership stake. Once this capital-recycling flywheel is established, it would become easier to fund new infrastructure projects across the country.

The combination of a government tenant, long-term leases and CPI-linked annual rent increases should make these assets attractive to investors seeking stable, long duration cash flows. One would therefore expect strong support from public markets, including our large KiwiSaver funds, while still allowing individual investors and other institutions to participate.

We have already seen this work

Vital Healthcare is a listed REIT on the NZX that owns private hospitals and day clinics across Australasia. It has a market capitalisation of approximately $1.5 billion and a property portfolio worth around $3.4 billion. Listed REITs can provide tax-advantaged distributions, which are typically paid quarterly. Given the stability of their lease cash flows, they can also be less volatile than many other listed businesses and provide useful diversification within an investment portfolio. The government would therefore not be trailblazing an entirely new model. It would be adapting a structure that is already operating successfully in New Zealand.

Napier Port: A local precedent

There is another compelling example in Napier Port. Napier Port was wholly owned by the Hawke's Bay Regional Council. In 2020, the port was looking to expand its terminal by building a new wharf, which was expected to cost approximately $175 million. Rather than funding the entire development through higher rates, the council raised capital from public equity markets to finance the expansion. Today, the port is operating successfully, supporting export growth in the region and enabling it to service new shipping routes and customers. The company pays a reliable dividend and is growing its earnings, providing investors with an attractive combination of income and capital growth. Importantly, the council retained a 55% stake in the listed company. Its remaining interest in the port is now worth more than the value of the smaller asset it owned outright before the capital raising.

Making better use of New Zealand's capital

New Zealand is a relatively small economy without the scale enjoyed by many of our allies and neighbours. That makes efficient allocation of capital even more important. We are simultaneously building a large private savings pool, while also facing a significant infrastructure deficit.

Using public markets to help fund infrastructure that benefits all New Zealanders could allow the government to more efficiently recycle capital. This would reduce pressure on the nation’s balance sheet, while also creating productive investment opportunities for local equity markets, which large funds and ordinary New Zealanders can participate in.