Seeds of Pohutukawa fund sought

Tuesday 7th September 2004

ABN AMRO Craigs and Direct Capital Private Equity have launched a $40 million capital raising by Pohutukawa Private Equity, a private equity investment company promoted and managed by the two companies.

ABN Amro Craigs executive chairman Neil Craig says Pohutukawa will enable investors to collectively participate in expansion capital and management buy-out opportunities in established unlisted businesses.

"Pohutukawa has been designed to enable retail investors to participate alongside institutional and habitual investors in what we believe is a unique structure within New Zealand," he says.

Craig says the �relatively low minimum investment� of $10,000, and the fact that only 40% of that money gets called on immediately are key features.

"Also, a portfolio with a balance of private and public equity should provide a higher return for a similar level of risk than a portfolio with listed public equity alone."

Pohutukawa will initially be unlisted, but ABN Amro Craigs will run an informal market for shares. He says if any of the businesses Pohutukawa invests in are subsequently floated, shareholders will, if possible, be given the choice of cash or shares in the business being floated.

Investments made by Pohutukawa will be managed by one of New Zealand's key private equity fund managers, Direct Capital.Direct Capital's managing director, Ross George says in countries where private equity markets are more established, returns from private equity investments have consistently been in excess of returns from investments in their local share markets.

"While the New Zealand private equity market is relatively young, funds managed by Direct Capital have invested over $150 million in 34 different opportunities over the past 10 years," George says."We have established a track record of attractive returns, having effectively achieved an average compound rate of return of 21% after management fees on 15 investments where a liquidity event has occurred and returns are measurable.

"One reason a skilled manager can achieve higher returns from private equity is that there's a much greater choice of businesses in which to invest. For every listed business in New Zealand there are approximately 120 unlisted businesses with 10 or more employees. In addition, with private equity, investments are made on the basis of detailed due diligence and there is opportunity for the private equity investor to provide expertise and the resources for growth."

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