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NZ Super Fund wanted govt Venture Capital Fund siloed

Tuesday 1st October 2019

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The Guardians of the New Zealand Superannuation Fund opposed the government's Venture Capital Fund being part of the Super Fund and wanted it established as a separate vehicle with its own investment mandate, chief executive Matt Whineray says. 

The Super Fund's investment mandate is to invest to help fund New Zealand's future superannuation needs and "this has slightly different objectives," Whineray told parliament's finance and expenditure committee."You can't serve two masters."

The Super Fund had $43.1 billion in funds under management at June 30 so the $300 million Venture Capital Fund will account for only about 0.7 percent of its portfolio.

While the Super Fund will provide the funds, the New Zealand Venture Investment Fund will be the entity selecting the investment managers the funds will be distributed to.

"How this has ended up with a separate fund is something we're very comfortable with," Whineray said, adding that the size of the fund is "not a significant amount" relative to the Super Fund.

National's Paul Goldsmith suggested there had been nothing stopping the Super Fund from investing in the venture capital space.

Whineray agreed, but said the Super Fund hadn't seen any significantly attractive investments or ones of sufficient scale to interest it.

"Getting access at a scale that makes it worth applying resources to something is important to us."

While he can't bind future governments, Whineray said the organisation's primary purpose is looking after the New Zealand Super Fund.

International experience has shown that when funds have had multiple mandates, they have produced mixed results.

The Super Fund does have experience in selecting investment managers to manage parts of the fund and there are a lot of similarities between that and the Venture Capital Fund, he said.

National's Ian McKelvie asked whether, since such funds are more likely than not to lose money, it could tarnish the Super Fund's reputation.

"I guess that is a risk. Our approach is - let's be very clear that there are two mandates here," and to be clear about the separation of the Venture Capital Fund from the main Super Fund, Whineray said.

In response to a question from the Green's Jan Logie, Whineray says that environmental, social and governance principles are an important part of the Super Fund's investment process.

Under the bill establishing the Venture Capital Fund, prospective venture capital fund managers will have to at least match with private capital the capital provided through NZVIF.

NZVIF chief executive Richard Dellabarca said since the government established his organisation in 2002, it had invested in nine venture capital funds, most of which had returned less than $1 for every $1 invested.

That reflected the "complete absence of angel funds" in New Zealand at the time the organisation was established.

One of the lessons NZVIF had learned with hindsight is that the funds were too small. For example, if a $20 million fund generated returns of $400,000, that was too small an amount to support a full investment team, Dellabarca said.

NZVIF had also been impacted by the GFC, he said. NZVIF's website says it currently has $245 million in funds under management in two funds.

Institutional investors in New Zealand probably won't invest in venture capital but may invest in companies at a later stage of development. Milford Asset Management has an active venture capital portfolio and other managers, such as Booster and Simplicity, have also invested in venture capital or are considering doing so.

But a small percentage of the $57 billion in KiwiSaver funds should be finding its way into venture capital, Dellabarca said.

Globally, about 26 percent of managed funds is allocated to alternative investments such as venture capital, he says. "Here, it's probably something like 6 percent."

National's Andrew Bayly asked Dellabarca how NZVIF is going to grow $300 million into $1 billion.

Dellabarca said he thought NZVIF could do that "but only time will tell."  

He explained that prospective managers will have to raise capital first – if they seek $30 million from the Venture Capital Fund, they will have to have already raised at least $30 million, a departure from how NZVIF has invested previously.

The $300 million will be distributed gradually over a five-year period. "I wouldn't want to see all this money allocated in year one. It's a five-year programme," Dellabarca said.

NZVIF has already spoken to 26 investment managers, both domestic and offshore, since the government announced in the May budget that it would establish the new fund, Dellabarca said.

But he is already seeing positive changes in the venture capital space since the budget announcement.

Bayly asked whether Lance Wiggs, who manages the $50 million Punakaiki Fund is correct in saying that he doesn't expect to qualify for Venture Capital Fund money.

"That might have been the case historically, but not now," Dellabarca said.

(BusinessDesk)



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