-NZ Super Fund to expand VC/PE Investment

 By LESLEY SPRINGALL The Independent | Friday, 25 Sep 2009

The $14.9 billion New Zealand Superannuation Fund is moving into venture capital.

The fund has expanded its private equity investment range to include investing in the bedrock of New Zealand  smaller growth companies.

Part of its so-called Expansion Capital Strategy, the move will see the Super Fund look for fund managers focused on investing $5 million to $15m in high-growth companies with revenues of between $10m  and $50m.

Matt Whineray, the Super Fund's general manager of private markets, says there is a significant pool of smaller high-growth companies in New Zealand that are constrained by a lack of equity capital.

"We think it's underserved from a capital perspective so we think we can get a little bit more bang for our buck.''

Whineray denies this is a direct response to the National Government's directive to the guardians of the fund to raise its investment in New Zealand from 18 per cent of its total portfolio to 40 per cent.

But he says it is an area the fund has been considering for some time so it fits both the government's objective and its own strategy to commit up to 10 per cent of its capital to private equity.  

To date, the fund has invested in nine private equity funds, including  three in New Zealand. It has $93.75m  invested among two Direct Capital funds and the AMP Pencarrow Private Equity fund.

Until now, its private equity investment has been targeted at mid to large-sized New Zealand companies in the $200m to $300m  revenue space.  Whineray says the lack of capital available in the expansion area has forced some smaller companies to go public too early  "which is just daft for everybody involved''.

He denies, however, this is a step into the higher-risk venture capital world: "Venture is generally start-up, while expansion capital is aimed at profitable, cashflow positive businesses that need capital to expand.'' 

Though Whineray refused to comment on which funds managers it is  in discussions with, one is rumoured to be traditional venture capitalist Endeavour Capital, which launched a  $100m to $150m early expansion fund earlier this year.

Franceska Banga, chief executive of the government-backed New Zealand Venture Investment Fund (NZVIF), and a $20m  investor in the Endeavour fund, says the Super Fund's move into expansion capital is positive for the venture capital sector.

 New Zealand's venture capitalists have long wanted New Zealand institutions to get involved in the venture capital sector to bring them in line with their peers in the United States  and Australia.

The only institutional investor to have taken a punt in the VC area is the ACC, which invested in the first four of the NZVIF's funds and made several direct investments.

But Nicholas Bagnall, ACC's investment manager. says the investment did not pay off. "For this, and other reasons, ACC's unlisted equity investment activity is now focused primarily on investment in more mature businesses.''