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Super Fund: Opportunities in expansion capital

NZ Super Fund says New Zealand expansion capital has the potential to generate active returns, and is an attractive investment opportunity for is portfolio.

Tuesday, January 9th 2018, 9:43AM

It has released a white paper, by Nathan Tuck and Fiona Mackenzie, in which they define expansion capital as the provision of capital to small, fast-growing private companies.

It includes growth equity, as well as small and medium enterprise buyout.

Tuck and Mackenzie said all the expansion capital companies the fund would consider had proven products and established business models.

"We believe there are approximately 5000 companies in New Zealand that fit within our definition of expansion capital."

Tuck and Mackenzie said there were three drivers of the opportunity: The supply of available capital was constrained through low levels of private equity activity in New Zealand versus other markets, a lack of appropriate debt markets and a listed market that was undercapitalised relative to larger developed markets.

"Although New Zealand private equity managers raised more than NZ$1 billion in 2016, we believe demand for capital to support growth still materially exceeds supply.

"Low levels of institutional capital penetration in New Zealand and sparse broker/intermediary coverage creates asset level mispricing because of poor liquidity and price discovery tools. These are features of both the public and private markets in New Zealand."

The fund has been investing in NZ expansion capital since 2005, with an internal rate of return of 14.7% net of fees. 

The fund uses external managers because the size of the expansion capital investment is small compared to its overall portfolio.

 

Tags: NZ Super Fund

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