NZ private equity delivers impressive returns

19 November 2012

NZ private equity delivers impressive returns

Private equity investments into unlisted New Zealand companies have, on average, doubled over the investment holding period, according to research undertaken by the New Zealand Venture Investment Fund.

The research analysed returns generated from investments into companies made by New Zealand and Australian private equity funds over 18 years between 1994 and 2012. Thirteen funds invested $1.36 billion into 92 companies. Those investments returned $2.85 billion upon realisation.

The key findings include:

The average deal size of $14.2 million, with the largest deal being over $200m of equity investment and the smallest being around $1m.
For every dollar invested in New Zealand companies, $2.10 was returned on those investments. The $1.36 billion invested between 1994 and 2012 earned $2.85b, before management fees and costs are accounted for.
The annual rate of return (IRR) on these private equity investments in New Zealand over the period was 33.7 percent.
39 percent of investments earned more than double what was invested, and 7 percent earned over five times what was invested.
Returns on investments were positive across the full period, although, as expected, were highest during the period from 1998 through to 2006.
The New Zealand private equity investment performance compares similarly to that of the Australian mid-market.

NZVIF chief executive Franceska Banga says the data confirms that over the last 18 years investment in privately owned New Zealand companies has been a healthy source of growth and investment returns.

“The research looks at returns across an 18 year period, which provides a significant sample taking account of business cycles. These returns clearly show that investing with professional private equity fund managers delivers excellent returns on investment on a consistent basis.

“Noting that while this data does not take into account fees and unrealised investments, it is clear that private equity investment has been a consistently high performance asset class across a wide range of professional New Zealand and Australian fund managers who have been actively selecting and investing into New Zealand companies.

“Returns have been consistently around two times or better over the 18 year period, regardless of the timing, although we can see the impact of the economic cycle with particularly strong returns achieved from investments made between 1998 and 2006.

“The high returns generated by private equity demonstrates the quality of opportunities which exist from investing in New Zealand growth companies. As investment levels increase, it will contribute to improved economic performance as these companies tend to have a disproportionate impact on the economy in that they deliver high revenues and high productivity.”

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