Direct Capital IV Raises $200 Million
Direct Capital today announced that its Direct Capital IV fund had so far raised $201.5 million in capital from investors in its initial fund raising and is well on the way to achieving an expected $250 million. The capital will be invested in large, profitable private companies.
The capital raised has mainly come from existing investors in the Direct Capital III fund raised in 2005, and investors have, on average, increased their commitments into Direct Capital IV by a factor of 2.3 times. Direct Capital has also attracted several new investors including community trusts and pension scheme trustees and is now working with new investors to complete its fund raising.
The success of the capital raising “is a huge endorsement of the private company market in New Zealand and also a reflection of our fifteen year track record” said Direct Capital’s Ross George.
Direct Capital IV will continue what the firm has been doing since 1994, investing in private companies valued between $25 million and $150 million. There are more than 1,500 companies in New Zealand with annual revenues exceeding $20m and Direct Capital’s market comprises about 850 of these. It includes companies in which Direct Capital has invested previously such as EziBuy, Ryman Healthcare (in which Direct Capital invested prior to the company’s IPO), New Zealand King Salmon, Express Logistics and many others. They are large, well managed companies that just happen to be privately owned and investors gain access to them through Direct Capital.
“The private company market is New Zealand’s largest equity market, being five to seven times larger than the NZSX for example, and represents more than a third of the economy”, said Mr George. “Private companies are the backbone of the New Zealand economy and investing in their growth does more for improving New Zealand’s economic performance than any other single initiative”.
Investment in private companies has also proven to be very successful for Direct Capital’s private equity investors. Having achieved net annual returns to investors in excess of 20% throughout its 15 year history, Direct Capital has attracted strong support from institutional investors including superannuation funds and community trusts.
“Consistency in performance is critical for our investors and we’ve invested through multiple economic cycles now,” said Mr George “We’ve had great support from large public funds like the New Zealand Superannuation Fund and Accident Compensation Commission. Investors with long term liabilities to fund understand the benefit that comes from investing in private companies where returns are higher but less volatile and risk is more highly diversified.
“We’ve also had very good support from other pension funds and community trusts whose trustees and managers have seen very large swings in the value of their investment portfolios but are still required to fund members’ pension benefits or continue making community grants. Trustees want to reduce risk and return to normal, common sense investment. It makes sense for them to invest part of their New Zealand equities portfolio in private companies as this market represents about 80% of the equities market.
“The current market environment is very positive for investing in private companies. While all companies, listed or private, operate in the same macro environment, private company owners don’t get distracted by share market volatility in the way that public company management and boards have to deal with.
“With additional capital from us, company owners can simply get on with growing their businesses in what is actually an outstanding environment for growing market share.
“We’ve been delighted with the response to Direct Capital IV. There’s been a fundamental shift in understanding the size of the private company market and the opportunities that exist for investors to make consistent returns from well managed, mid-sized New Zealand companies,” concluded Mr George.