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My Portfolio: Psst ... this is private

By Rebecca Macfie

Thursday 1st July 2004

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Here's a curious fact: there are New Zealand 173 companies listed on the sharemarket, but there are almost 300,000 registered companies in total - most of them small to medium sized, privately owned enterprises.

If you fancy investing in one of the latter, you generally have to go and talk turkey with the owner and see if you can work something out. If it's a successful company, you'll generally need quite a lot of dough to get the owners interested. For mum and dad investors trying to build a diversified portfolio for their retirement, it's not really a convenient or practical option.

That's where private equity funds come in. Although there's nothing new about private equity in New Zealand, generally it's consisted of networks of wealthy individuals or private investment firms. But in the last few years we've seen the emergence of private equity funds pitched specifically at small retail investors. Fancy ploughing a few thousand dollars into a high-profile, privately owned company like Jade? As an individual investor you're not likely to make it past the reception desk, let alone be given a chance to look over the books to see if it's a good bet. As a unit holder in a private equity fund like ICap (Intellectual Capital Partners), you own a slice of Jade, as well as a selection of other unlisted companies including bungy jumping operator AJ Hackett and healthcare provider Radius.

So far there has been only a handful of private equity offerings for retail investors. AMP Private Capital raised $56 million in 1999 (minimum subscription was $30,000); ICap has three prospectuses for retail funds in the market, and has already raised $60 million (minimum subscription $2000); and Goldman Sachs JB Were's Hauraki No 1 and 2 funds have raised almost $100 million (minimum subscription $25,000). Sharebroker ABN Amro Craig and Direct Capital Partners plan to issue a $50 million retail private equity fund in the next few weeks.

Funds like these aim to invest in established private companies with strong growth prospects. ICap's New Zealand principal Tony Hannon stresses he's not running a venture capital fund - he's after companies run by people with proven management competency, clearly delineated intellectual property or brands, and room to grow. Similarly, the Hauraki funds are after proven, established companies to invest in - among those they've backed so far are Hirepool, and a cluster of former Skellerup companies, including Masport.

Investors in private equity funds need to be patient, however. For instance, ICap's IEP fund and the AMP fund both call for a 10-year commitment, and there's no secondary market. Because of this lack of liquidity, private equity fund managers tend to advise retail investors to place no more than 5-10% of their portfolio in this asset class.

But, given the interest in the recent Hauraki No 2 prospectus, which aimed to raise $40 million and got $74 million, expect to see more of these products in the market in future.
And considering the importance of the small to medium business sector to New Zealand's economic growth, that's got to be a good thing.

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