At last ordinary New Zealanders can now purchase a stake in a prison or a hospital or a school via the ground-breaking New Zealand Social Infrastructure Fund (NZSIF).

As taxpayers you may have thought that you already owned a piece of these assets, and you do, sort of. But rather than the diffuse sense of ownership with which most citizens regard public assets, investors in the NZSIF will have a more intimate and direct relationship with specific jails, schools, hospitals and whatever else can be lumped under the 'social infrastructure' tag.

The basic philosophical premise of the public-private-partnership (PPP), of which the NZSIF is an example, is that while governments may be good at identifying social needs, they're not very good at developing and running the infrastructure that fulfils those needs.

As Kim Ellis, NZSIF chairman, says in the introduction to the fund's investment statement: "International experience using a PPP model to procure infrastructure has demonstrated that projects have generally been delivered on a more timely and cost effective basis than traditional infrastructure procurement methods, and have allowed governments to succeed in delivering essential social services to the public."

So, if you believe the line, it's a win-win for taxpayers and investors over the long-term.

The NZSIF investment statement cites various international studies that prove its point without actually identifying them - but that detail perhaps would've unnecessarily lengthened the document beyond its 68 pages.

There may be some, however, who don't care whether taxpayers get a good deal out of the PPP and will only want to consider the NZSIF on its investment merits.

If so, the investment statement is a must-read. The NZSIF has a complex investment structure with many layers of legal entities, and fees, involved.

It is an interesting long-term prospect - the fund will last 18 years with little, if any, prospect to sell out on the way - but carries the usual investment risks, along with a number unique to the NZSIF model.

I counted about 30 named risks in the investment statement, including one headed "Exculpation and indemnification", which says: "The Limited Partners, including NZSIF, are also responsible for indemnifying the General Partner and the Investment Manager (and their employees and agents) for any losses or damage incurred by them except for losses incurred as a result of their fraud, negligence or wilful default."

If fraud does occur, however, investors may take some comfort in the knowledge that the perpetrators could be serving time in a jail they helped construct.



David Chaplin