Expansion capital, or the provision of capital to small and fast-growing companies, has been an active investment strategy of the New Zealand Superannuation Fund since 2005.
Of the NZ$37.4 billion ($26.8 billion; €22.2 billion) fund’s 5 percent exposure to private equity, around 1 percent is invested in expansion capital in domestic companies.
According to its December 2017 whitepaper titled How We Invest, the fund considers expansion capital attractive for a number of reasons. First, the lack of available capital for such companies is limited by a combination of low levels of private equity activity in New Zealand versus comparable markets, as well as a lack of appropriate debt products and a listed market that is undercapitalised. Second, the demand for capital to support growth still materially exceeds supply. And lastly, asset level mispricing continues to exist because of the low levels of institutional capital penetration.
Mostly founder-owned and with no prior institutional investment, these companies are in need of capital but have outgrown the venture capital markets and also not yet large enough to be attract offshore private equity capital. It is within this backdrop that NZ Super has been investing in New Zealand expansion capital for over a decade and has committed more than NZ$450 million to date.
Here are five charts that illustrate the fund’s strategy