Private equity – A role for KiwiSaver?

Private equity involves investment in unlisted companies.  These generally require long time horizons and are perceived as delivering high returns.  It sounds perfect for KiwiSaver, yet there are few examples of KiwiSaver schemes embracing private equity investment.  This month we look at the private equity market in New Zealand and opportunities to invest.  In Part 2 next month we will focus on growth KiwiSavers and whether they should (or actually do) include private equity as an alternative investment. 

Private equity covers a range of unlisted share transactions such as expansion capital, leveraged buy outs and “special situations” (which can include pre-IPO funding or investing in distressed companies).  According to the New Zealand Private Equity and Venture Capital Association there were 42 private equity transactions in NZ between 2011 to 2013 with a combined value around $1 billion (average size $24m).   To put this in perspective, this is almost exactly half the value of IPOs floated on NZX over the same period (excluding the government’s mixed ownership model floats).  Private equity makes a significant contribution to capital raising in NZ.

Private equity (PE) and risk

Private equity investing is seen as high risk.  There are several reasons for this: