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Private capital, which is an established asset class overseas, is finally becoming fashionable in New Zealand. Over the past year there have been a number of businesses set up which concentrate in this area. Most recently AMP Asset Management launched its Private Capital fund which aims to raise $25 million.
Funds like this aim to raise capital from investors then use it to directly invest in unlisted companies with significant opportunities for growth and strong returns.
AMP Asset Management managing director Murray Gribben says there are three kinds of private capital, namely; venture capital, expansion capital and capital for management buyouts.
He says the AMPAM fund concentrates on providing capital to businesses for expansion and management buyouts.
"This is not a venture capital operation," he says.
In the past year AMPAM have invested more than $80 million in six successful transactions, the most recent being the management buy out and subsequent delisting of Eastern Equities.
Gribben says the Private Capital fund is designed for sophisticated investors who have minimum portfolios of between $200,000 and $250,000.
He describes Private Capital as being a subset of the equities asset class.
The fund is expected to generate strong returns, however it also has significant risks.
For instance it is 10 year closed fund, it has no liquidity and because of its structure it is difficult to measure performance.
Gribben says Private Capital is expected to generate returns 5 per cent greater than the NZSE40, however international experience shows these types of funds can produce significantly better returns.
Private Capital has strategic alliances with the three major private capital teams in New Zealand - Pencarrow Fund, Direct Capital and Caltech.
The other significant development in this area is the New Zealand Stock Exchanges moves to establish the New Capital Market (NCM).
NCM is an initiative, modelled on overseas experience, designed to encourage and promote development of new growth orientated businesses.
Good Returns will run a feature on private capital next week.
For more information on AMPAM's Private Capital fund visit www.privatecapital.co.nz
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