The New Zealand Super Fund is getting behind a government initiative to develop the country’s venture capital market and see more private sector investment managers, both domestic and international, active in the sector.
A parliamentary bill is scheduled to be tabled this week for the introduction of a new Venture Capital Fund that will be financed in the main by the NZ$42 billion ($27 billion) NZ Super Fund.
The new fund’s purpose is to plug a perceived gap for New Zealand-based companies in Series A and B funding – these are the investment rounds that come after the initial raising of seed and start‐up capital by new companies. If these companies show promise, then larger Series A and B rounds of between $2 million to $10 million, broadly speaking, are often needed to help them expand.
The NZ government’s recent 'Future of Work' programme addressed the economic and social challenges presented by rapid global technological change. The VC fund is seen as an important step towards future‐proofing the New Zealand economy.
The model proposed would see the Guardians of New Zealand Superannuation (the Crown entity that manages the NZ Super Fund) appoint the New Zealand Venture Investment Fund (NZVIF) to manage a fund‐of‐funds. NZVIF would then appoint both domestic and international private sector venture capital fund managers.
The NZVIF was established by the New Zealand government in 2002 to build an early-stage investment market in New Zealand. It currently has $245 million of funds under management.
The NZ government's intention is for the $300 million venture capital fund to comprise $240 million of contributions redirected from the NZ Super Fund and $60 million of NZVIF’s existing assets. At the end of its lifetime, funds would then be returned to the Crown to pay for superannuation.
NZ Super’s external investments and partnerships team will oversee the fund of funds structure in the same way they manage relationships with other external fund managers.
"Our team have worked with officials on the policy and have had input into the proposed investment structure," NZ Super Fund's chief executive, Matt Whineray, said.
GROWING VC INTEREST
He confirmed to AsianInvestor that NZ Super has had discussions with international peer funds to get background on comparable structures.
Whineray wouldn’t disclose which funds but NZ Super has a regular dialogue with other sovereign investors, including Singapore’s GIC and Temasek, both of whom have active venture capital interests. Singapore’s Vertex Ventures, for example, is backed by Temasek and recently closed its fourth fund, with outside investors including Taiwan's Cathay Life Insurance.
Another member of NZ Super's sovereign fund network, Alaska Permanent Fund Corporation, joined with UK pension fund Railpen and the Public Institution for Social Security of Kuwait in February 2018 to establish Capital Constellation. With an initial total commitment of $700 million, the firm was set up to fund and assist the next-generation of promising private equity and alternatives managers globally.
As AsianInvestor has previously reported, early-stage tech investment has gained considerable traction in Asia over the past year.
Bain & Co reports that venture capital and private equity investment in Southeast Asia has soared to record levels, as scores of new investors pour into the region. In 2017, the number of recorded venture capital deals rose to 524, four times the level of 2012, while private equity deal value rose 75% to $15 billion.
NZVIF CEO Richard Dellabarca said the new fund aims to attract private sector investors to the domestic venture capital market and would help develop the country's investment manager ecosystem.
The NZ Venture Capital Fund is expected to have a life of 15 years, consisting of a five-year investment period and a 10-year "harvest" period.
“The funds will be committed over an estimated five years as investment managers meet our appointment thresholds and identify suitable companies to invest in,” Dellabarca said. “They will be required to source private capital in order to receive government funding.”
Dellabarca told AsianInvestor: "We have spoken to more than 20 domestic and offshore fund managers since the May 2019 Budget announcement," but he declined to name the firms owing to confidentiality.
VC fund managers will need to attract private sector capital in order to receive government money from the fund‐of‐funds. NZVIF will negotiate contractual arrangements with VC fund managers on normal commercial terms, it said.
The Venture Capital Fund bill goes before the New Zealand parliament this week for its first reading. Legislation is projected to be in place later this year.