KiwiSaver provider predicts more investment in private companies

Apple grower Rockit Global has benefit from previous investments from Pioneer Capital. Photo / Supplied

More KiwiSaver funds are likely to invest into private companies in the future as fewer companies list on public markets, an investment expert says.

Simon O'Grady, chief investment officer at Kiwi Wealth, has just committed up to $50 million of its KiwiSaver money to a fund run by Pioneer Capital - a private equity company which specialises in investing in Kiwi export businesses.

The investment is the second private equity investment Kiwi Wealth has made. Last year it committed $54m to venture capital investors Movac to invest in technology companies.

Kiwi Wealth has more than $5 billion in its KiwiSaver funds, so the investments remain a small portion, but O'Grady believes in another five years' time they could make up more than 5 per cent of its growth fund.

"We will be doing more of this over time."

O'Grady said there was also a global trend for assets to be more private rather than publicly listed.

"Companies either aren't listing or are being delisted.

"I think KiwiSaver funds will need to have expertise and access into unlisted markets."

O'Grady said private equity investments fit well into KiwiSaver funds because they offered the potential for higher returns and were not aligned to investments in listed companies.

"They contribute nicely to the risk-adjusted returns for two reasons - firstly the return is higher because it is private equity and they are full of idiosyncratic risk, which means they will be uncorrelated with what listed markets do because it is all about the individual companies and how they are going rather than a big diversified exposure to NZ Inc economy."

While Pioneer is targeting companies that have the potential to give returns of around 30 per cent, O'Grady said it was hoping for between 5 to 7 per cent above the cash rate as opposed to a global equities return of around 4 per cent above the cash rate annually.

O'Grady said the investment also resonated with what its customers wanted.

"The consumer is coming to us saying 'hey we would like our money to help NZ Inc and grow it. But we also want the returns please'. This also ticks that box. This really is about creating jobs, economic outcomes for the country."

Pioneer Capital has raised $300m in total for its fund and other investors include the New Zealand Superannuation Fund, which will contribute $100m, and Nga Tahi with a $30m commitment.

Pioneer Capital has previously invested in Kiwi businesses, including pet food maker Natural Pet Food Group, which has grown strongly in the United States, Japan and China and was last week acquired by global private equity firm KKR; buy-now-pay-later company Laybuy, which recently listed on the ASX; and apple marketer Rockit Global, whose product is now grown in nine countries and sold in 27 countries.

Simon O'Grady, chief investment officer at Kiwi Wealth. Photo / Supplied

Randal Barrett, Pioneer Capital managing director, said it planned to make the first couple of investments inside a year.

"New Zealand is incredibly well placed in the world markets; its profile has risen, and in the sectors in which we focus, many New Zealand companies are internationally competitive and have grown to scale very quickly in large markets. Our goal is to turn these companies into mini-multinationals, with operations on the ground locally and capability around the world."