KiwiSaver changes could help venture funding
Tweaking KiwiSaver could encourage large institutional investors to put more into early-stage companies, a government investment body says.
The New Zealand Venture Investment Fund said changes should be considered to make it easier for Kiwisaver fund managers to invest in the somewhat riskier field of private equity. Private equity fund managers typically back companies which need $5-20 million to expand.
Chief executive Franceska Banga said private equity investments in New Zealand were generating healthy returns. But institutional investment in private equity and high-risk venture capital was low by international standards.
If institutions were to allocate just 3 per cent of their portfolios to private equity it would boost the sector by up to $2 billion, five times the current allocation, she said.
Banga said it was common in major western economies for institutions to have substantial stakes in both venture capital and private equity.
Endowments and foundations in the United States allocated about 50 per cent on average to alternative strategies, of which 30 per cent was invested in venture capital and private equity.
In New Zealand, the participation of the New Zealand Superannuation Fund had made a big difference to private equity over the last four years. But the vast majority of the other institutional investors – including KiwiSaver funds - had no or little involvement.
"With KiwiSaver Funds continue to grow and becoming an increasingly large player in New Zealand's capital markets, it is important to look at the policy settings overseeing the scheme,’’ Banga said.
Institutions told NZVIF-commissioned researchers the things holding them back from private equity included illiquid asset classes and fund manager fees.
The solution would be a mix of industry, regulatory and capital market initiatives which made private equity more accessible and understood, Banga said.
She said it was harder to attract investors to venture capital because as a new sector there was little performance data. However, New Zealand had a pipeline of unlisted high growth companies which would looked attractive to private equity fund managers.