It is not surprising that the fund manager outlook for the next six months is neutral.
The early 2025 schism in global trade and geopolitical norms caused financial markets to gyrate. The impact on New Zealand private markets will take time to emerge. The impact on some portfolio companies may be more immediate.
The high level of committed capital by recently raised funds means business as usual for some fund managers. Finding new owners of mature businesses at acceptable valuations may be more difficult.
Positive long-term trends
Over the last 10 years, private equity and venture capital funds have invested $16.1 billion in growing New Zealand companies.
Venture funds have invested $2.6b in early stage companies during that time and over $4.0b has been invested by mid-market private equity funds.
The average investment size in venture capital has been rising over the last five years from an average of $1.4 million to $2.1m, with the number of investments each year increasing from 92 to 277.
In mid-market, the average investment size in 2024 was $19.2m, compared with a five-year average of $17.2m – although the number of annual transactions in 2024, 27, was below the five-year average of 33 annual transactions.
Micro-VC funds have established a foothold in the venture system. Some of the funds are focused on specific sectors such as decarbonisation and fintech.
Challenges ahead
Private capital fund managers’ challenges include regulatory change and raising capital in uncertain market conditions.
The Active Investor Migrant policy changes turned out better than expected.
The policy, implemented from April 1, 2025, has indications that it will be a useful pipeline for high-net-worth investors for venture capital and private debt funds. Changes to the Foreign Investment Fund rules are yet to be released with the next taxation review. But indications are that the Government has heard the submissions and is moving to improve outcomes for migrant investors and, hopefully, returning Kiwis.
We await further information from the Government on proposed changes to KiwiSaver regulations to support investment in private markets.
In the meantime, a few KiwiSaver funds with sufficient scale are ramping up their capability to execute private capital strategies. Private equity and venture capital funds raised $1.6b in new funds last year. More fundraisings are expected in 2025.
Uncertainty in financial markets may slow fundraising commitments but globally, institutional investor appetite for private assets appears to be strong.
For New Zealand venture capital funds, the Elevate programme managed by NZ Growth Capital Partners is an important limited partner for new-venture fundraising.
Without Elevate, fundraising for the local venture funds will be challenging.
Shaping our future
New Zealand private equity and venture capital managers have accelerated their execution of ESG (environmental, social and governance) frameworks, with most fund managers working with portfolio companies to enhance reporting suitable for the scale of New Zealand portfolio companies.
It is admirable that the small and medium businesses with private capital shareholders have achieved excellent progress in ESG reporting, driven by ambition and without regulation.
The Government should understand that business leaders are motivated by improved business performance and red tape is unlikely to achieve better practices. I look forward to the year ahead.
● Colin McKinnon is the executive director of the New Zealand Private Capital Association
