LP interview: Ngai Tahu Holdings

In the painful, generations-long history of post-colonial reconciliation, the Maori people of New Zealand have emerged as the most socially and economically integrated indigenous minority in the world. Now they’re bringing that success story to private equity.

Maori tribes, known as iwi groups, have emerged as a key pillar of the country’s expanding private equity scene, especially in the case of the South Island’s Ngai Tahu. The tribe’s commercial entity Ngai Tahu Holdings has become the largest investor of its kind and a symbol of how a diversifying LP base is cementing PE as a mainstay of local business culture. 

Starting in the 1990s, iwi groups began winning financial settlements from the government over land disputes that traced back to the 1840s. This coincided with the founding of the country’s first GPs and opened an attractive new avenue of wealth creation for an ecosystem of investment professionals traditionally rooted in philosophies of patience and independence.

“Private equity tends to resonate well with iwi investment groups, and broadly, the private equity market has seen an increase in iwi participation post-settlement,” says Matthew Slater, CIO at Ngai Tahu. “There are still some iwi that have yet to settle with the government, so we expect that some of that money will find its way into third-party private managers in the years to come.”

Local heavyweight

Iwi groups now represent close to one fifth of the capital invested in some New Zealand PE funds and are increasingly seen as sophisticated players with deep understanding of the primary industries that still dominate the local economy. Ngai Tahu leverages a tribal history of professional industrial activity in whaling and agriculture that dates back at least to the late 1700s when first contact was made with Europeans.

The firm was formally established in 1998 following a government settlement worth NZ$170 million ($124 million). By the time a second settlement of NZ$180 million was reached earlier this year, the value of assets under management had ballooned to NZ$1.4 billion with overall investment return rates clocking in at almost 16% per annum on average since inception. 

Ngai Tahu’s current portfolio is 85% privately invested, with some 75% deployed in direct deals and 10% allocated to funds. The remaining 15% is committed to various listed assets, including retirement village operator Ryman Healthcare, an early co-investment alongside local GP Direct Capital. The company went public as a minnow in 1999 and is now worth about NZ$5.3 billion. 

Fund interests and select direct investments are managed under a subsidiary known as Ngai Tahu Capital. Most direct deals are made through four other divisions dedicated to the group’s core sectors of property, farming, seafood, and tourism. Fund commitments fall in a range of NZ$15-40 million while check sizes for direct deals generally start at around NZ$50 million. 

“We don’t have a set allocation for private equity as such, but the asset class is a large part of what we do, especially in our direct company exposures,” says Slater. “Our investments in areas like property and seafood are not tradeable in the same sense as most private equity assets. We take a much longer-term approach, so we probably delve a little bit more into our company operations – which is slightly outside of the usual LP-GP universe.” 

Ngai Tahu has taken LP positions with home-grown players including Direct Capital, Pioneer Capital, Waterman Capital, and Movac. Unlike possibly any other iwi investor, the firm has also ventured overseas, backing vehicles launched by Australian managers Next Capital and Pacific Equity Partners. 

This footprint is supervised from offices in Christchurch and Auckland and maintained with regular regional travel, including at least one trip a year to Australia. Thorough engagement remains a relative notion in New Zealand’s intimate private equity space, however, meaning that while relations are often personal, they’re at little risk of being overly managed. 

“We try to form fairly close relationships with our GPs in New Zealand because we’re playing in the same market, and we jointly bid on assets from time to time,” says Slater. “But one of the benefits of the LP-GP model is that it’s relatively light-touch in terms of ongoing engagement. We don’t always need to be face-to-face with fund managers.”

Strategic considerations

The latest development from Ngai Tahu is the naming of a new chairman in Mark Tume, a former director at the firm who also served as board member for Te Atiawa Iwi Holdings and New Zealand Superannuation Fund (NZ Super). Tume officially filled the post earlier this week and will serve a three-year term.   

The appointment coincides with the firm’s 20-year milestone and is being touted as part of a new phase of development. A six-member “form and function review” committee recently assembled by the Te Runanga, a tribal council focused on protecting iwi interests, is expected to deliver details on the strategy later this year.   

While NZ Super, Accident Compensation Corporation, and many other sizeable New Zealand-based institutional investors keep a large portion of their portfolio overseas, Ngai Tahu prefers more domestic exposure, especially in the South Island. This reflects both the interests of the tribe and a natural predisposition to understand business opportunities closer to home. 

International considerations remain an important factor, however, due to the export-related and infrastructural nature of many of the firm’s key sectors. “Our investments form part of an intergenerational strategy, at least in totality,” says Slater. “With that approach, we have to think about managing the investment performance of entities that will always exist.” 

Nevertheless, Ngai Tahu’s historical emphasis on real estate and primary industries has begun to expand into more traditional private equity domains such as the fragmented New Zealand transport and logistics space. This effort includes direct investments the country’s largest coach operator Go Bus and trucking company Hilton Haulage. 

At the same time, a more concerted effort to maintain a long-horizon profile has been evident in a slow evolution away from public markets. For example, Ngai Tahu’s Ryman investment – which accounts for about two-thirds of listed assets under management – has declined from a 25% shareholding in 1999 to a 3% stake as of last year.   

“Ryman is still a very significant to us in terms of underpinning our total portfolio, even though it’s now a smaller holding than other entities like Ngai Tahu Seafood,” says Slater. “It’s hard not to pay attention to the near-term stock prices and whatever is moving them, but in general, we try to take a longer-term approach to considering value and worth.” 

Deep roots

Such talking points come naturally from an organization that charts its foundation across centuries – the tribe’s primeval clans are said to have settled the South Island 800 years ago. Ngai Tahu now represents about 1% of New Zealand’s national population and 8% of the Maori demographic. 

From a fund management perspective, the ethical component of this stakeholder base is substantial, but not radically beyond industry norms. Environmental, social and governance (ESG) protocols are controlled across Ngai Tahu’s various operational divisions via a “values in action” framework, which is meant to be implemented flexibly with respect to the specific circumstances of each subsidiary. 

Interestingly, group-wide oversight of this architecture is managed by a veteran executive in a new position known as chief values officer. Charisma Rangipunga, Ngai Tahu’s general manager for iwi strategy, took up the role in February last year, tackling a range of diplomatic responsibilities that spans from brand consistency to engagement with local populations. 

“We broadly have the same exclusion overlays as other family and institutional businesses, but we bring a different lens in terms of impact on the environment, homes and jobs,” Slater explains. “We’re not just a corporate with a nominal head office, we are based in the Ngai Tahu takiwa [tribal territory] for a reason – to help us see through a Ngai Tahu lens in our decision-making and ensure our actions align closely to Ngai Tahu values. Those values guide what we do alongside the typical ESG considerations.”

As the wealth pool of Ngai Tahu and other iwi players increases, it is becoming increasingly clear that investment opportunities are less constrained by internal polices than by market-level issues. Private equity fundraising in New Zealand surpassed NZ$1 billion for the first time in 2016, suggesting that LPs have been busy, but this coincided with a rise in company valuations prompting significantly weaker deal flow among GPs.  

For Ngai Tahu, there’s harmony in the dissonance. Even as pricing metrics zigzag erratically in the foreground, investor confidence and overall expansion of the private equity industry tracks steadily upward. With a unique regional filter on even the most pervasive macro reverberations, the firm appears set to continue growing its support for the asset class.

“We’ve seen some larger funds raised in New Zealand over 2016-2017, and in general, that’s a positive thing because it creates a valid avenue for providing exit opportunities to small and medium-sized businesses,” says Slater. “The amount of dry powder is a global concern, but in New Zealand, the bigger issue is probably how active the Australian GPs are. Company value expectations will always ebb and flow, but at this stage, we’re still seeing a number of deals in the New Zealand market in the private equity space.”    

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• Topics
• Australasia
• LPs
• New Zealand