Fund focus: Pencarrow underlines New Zealand interest

New Zealand Superannuation Fund (NZ Super) has been the lynchpin of its domestic private equity scene since the early 1990s. But despite the sovereign fund’s gradual retreat from the asset class in recent years, fundraising in the country has only gathered pace. 

Pencarrow Private Equity, one of the local industry’s founding players, has summarized this trend by achieving a first and final close on its fifth fund at NZ$250 million ($176 million) with no participation from NZ Super. Instead, the GP has rallied an increasingly PE-friendly community of foundations, community trusts, and indigenous Maori financiers known as iwi groups. 

These smaller institutional investors along with the government-controlled Accident Compensation Corporation – another sovereign PE stalwart – accounted for some 60% of Fund V. High net worth individuals, which have warmed up to the asset class more recently, represented the remaining 40%. In a first for Pencarrow, the broader LP base also included a US family office.  

“Virtually all of our existing LPs have re-upped and usually with sizably larger commitments than last time,” explains Nigel Bingham, a managing director at Pencarrow. “They see that private equity has performed well in New Zealand, which is one of the strongest performing countries in the world in the lower mid-market. The average IRRs are well in excess of 30% on a deal-by-deal basis.” 

Fund V builds on the momentum of its predecessor, which amassed NZ$204 million across a NZ$124 million close in 2013 and a NZ$80 million annex in 2016. Key Fund IV exits included the sale of sports clothing brand Icebreaker and coffee company BrewGroup to foreign players.  

Investment strategy going forward will attempt to extend this success by focusing on branded consumer products and B2B businesses with recurring revenue and resilience to macroeconomic cycles. Pencarrow claims this thesis has been so fruitful in the New Zealand middle market that Fund IV ran out of capital and the new vehicle is already reviewing a strong pipeline of potential investments. 

The fund has already backed a branded food and beverage company and is about to invest in a software developer. It targets management buyouts, succession deals, and expansion capital for local companies with enterprise values of NZ$20-100 million. The plan is to bring these businesses north of the NZ$100 million mark, where greater competition for assets and a strong preference for private deal-making among local investors are seen as the drivers of an uncommonly favorable exit environment. 

“A huge proportion of the economic activity in New Zealand is occurring in the private markets, and there are very few players that operate in the sub-$100 million space where the vast majority of the opportunity sits,” says Bingham. “There’s a supply-demand imbalance that’s strongly in our favor. That reflects the broader opportunity set that we see.”   

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• Topics
• Australasia
• Buyout
• Fundraising
• GPs
• New Zealand
• Pencarrow Private Equity