Direct Capital raises NZ$83m from retail investors

The New Zealand-focused private equity firm has raised NZ$82.5 million for its second retail fund, which will invest alongside its fourth buyout fund. Direct Capital aims to raise NZ$250m for the two funds combined.

Direct Capital and ABN AMRO Craigs have raised NZ$82.5 million ($41 million; €32 million) for Pohutukawa Private Equity II, an unlisted public fund raised from retail investors. The fund was targeting commitments of NZ$60 million.

“To raise NZ$82.5 million in the current market, including over NZ$22.5 million in oversubscriptions is an exceptional result in extraordinarily tough market conditions,” Neil Craig, ABN AMRO Craigs executive chairman, said in a statement. “These investors understand that the next three to four years are likely to represent a period of very good investment opportunities for well-capitalised businesses.”

The offer for the retail fund, which has a minimum application size of NZ$20,000, began on 27 November 2008 and closed on 27 February 2009. Investors purchased shares at NZ$1 each. They paid 10 cents a share at the time of application, while the remaining 90 cents per share is payable in calls of 10 cents or more upon 30 days notice.

Investors in the fund can sell their shares subject to the discretion of the directors of the fund. Shares are not sold on any exchange, but ABN AMRO Craigs assists in the transfer of shares.

Pohutukawa II allows retail investors to invest alongside institutional investors in Direct Capital IV, a private equity fund launched in December 2008. Pohutukawa II will invest alongside Direct Capital IV on a pro-rata basis, Gavin Lonergan, an investment director at the firm, said in an interview. Together, the two funds will manage NZ$250 million.

Direct Capital IV will target investments in mid-sized companies in New Zealand and Australian companies looking to make an entry into New Zealand.

The firm expects to raise between NZ$170 million and NZ$200 million for the first close of Direct Capital IV by the end of March, Lonergan said. This amount includes the NZ$82.5 million raised for Pohutukawa II.

“Pohutukawa II effectively becomes an investor in Direct Capital IV,” Lonergan added.

Direct Capital IV will focus on providing expansion capital to privately-owned mid-market businesses with revenues between NZ$25 million and NZ$150 million, in an investment strategy that remains unchanged from the firm’s previous funds.

“There has been a real shift away from complex debt instruments back to simple investment of equity into good, low risk, profitable businesses that just happen to be privately owned,” Ross George, a managing director at Direct Capital, said in a statement.

The fund’s predecessor, Pohutukawa I, closed on NZ$53 million in 2004, and is now fully invested. ABN AMRO Craigs Investment Banking was the lead manager in raising capital for Pohutukawa II.

Direct Capital manages more than NZ$440 million across seven funds and it has invested more than NZ$375 million in 60 companies since its inception in 1994.