New Zealand fund ‘well on way’ to target
AUSTRALIAN PRIVATE EQUITY & VENTURE CAPITAL JOURNAL JULY 2009
Auckland-based Direct Capital has passed the NZ$201
million mark in fundraising for its latest private equity
The manager said it had commitments of NZ$201.5 million
and was “well on the way to achieving an expected
NZ$250 million” for its Direct Capital IV fund.
New Zealand Private Equity & Venture Capital Association
executive director Colin McKinnon said Direct Capital’s
progress “indicates that investors are prepared to support
growth capital to be invested into the good opportunities
which exist in privately owned New Zealand companies”.
Mr McKinnon added: “It is especially pleasing to see that
major institutional investors – such as the New Zealand
Superannuation Fund, ACC (Accident Compensation
Commission) and some of the pension funds and
community trusts – are investing into this area.
“New Zealand private companies need to be able to
access growth capital to finance further expansion, which
is the focus for funds like Direct Capital. This is good news
for the New Zealand economy and the business sector in
In May (APE&VCJ, Jun 09) the New Zealand
Superannuation Fund said it had committed NZ$50 million
to the fund as a cornerstone investment.
Announcing passing the NZ$200 million mark on June 26,
Direct Capital said commitments had come mainly from
investors in the 2005-vintage Direct Capital III fund. These
investors had, on average, increased their commitments
by a factor of 2.3 times for the new fund. Several new
investors had also been attracted including community
trusts and pension scheme trustees and the manager was
now working with potential further new investors to
complete the fundraising.
Direct Capital managing director Ross George said the
success of the capital raising was “a huge endorsement of
the private company market in New Zealand and also a
reflection of our 15-year track record”.
Mr George said the new fund would be invested in the
same market segment as the earlier Direct Capital funds,
established New Zealand mid-market private companies.
On current values, this would include companies valued
between NZ$25 million and NZ$150 million. This accounts
for about 850 of the 1500 New Zealand companies with
annual revenues in excess of NZ$20 million.
“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 that 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.”
Direct Capital has achieved average net annual returns to
investors in excess of 20 per cent over its 15-year history
and has attracted strong support from institutional
investors, including superannuation funds and community
“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
“We’ve also had very good support from other pension
funds and community trusts whose trustees and manages
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
per cent 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
“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.”
Direct Capital has so far raised total funds of about NZ$600
million. The firm is owned by its senior management team
most of whom have been with the manager for most of its
Direct Capital investments over the past few years have
included New Zealand King Salmon, Rodd & Gunn, Go Bus,
Sears & Mac4, Innovair, Paper Coaters, New Zealand
Pharmaceuticals and Express Logistics.
As at the end of March, Direct Capital III fund had achieved
a net return to investors of 28.9 per cent per year.