More KiwiSaver funds will invest in private companies - expert

Binu Paul, founder and managing director of SavvyKiwi believes more KiwiSaver funds will invest in private companies. Photo/Supplied.

More KiwiSaver funds will invest in private companies in the future because the New Zealand sharemarket is not big enough to take all the new money flowing into the scheme, an expert has predicted.

Booster, which manages more than $1.2 billion in KiwiSaver money, revealed this week it had bought stakes in two wineries in its first move into private company investments.

Typically KiwiSaver funds invest in publicly listed companies because it is easier to buy and sell shares in the company when they need to.

But Binu Paul, founder and managing director of independent KiwiSaver research firm SavvyKiwi, believed there would be a "huge hunger" from KiwiSaver funds to invest in private New Zealand companies and was surprised it had not already taken off more.

"The reason there is increased interest in going out like this [Booster], is around 15 to 20 per cent of the money is invested domestically but our market is not big enough to take that kind of money."

Paul said larger funds could run into capacity issues with the local sharemarket where if they continued to invest in companies it could artificially increase the share price disadvantaging the KiwiSaver fund.

Morningstar figures show about $4.5b of the $40b in KiwiSaver is invested in the New Zealand sharemarket through equities and listed property funds.

Paul said most equity funds had the flexibility to invest in non-traditional investments or private companies.

But the funds typically had a limit of about 5 per cent or up to 10 per cent to invest in those type of assets.

Booster has said its direct investment will be limited to low single percentages.

Paul said the downside of private investments was that investors could not get out of them quickly.

But he said most KiwiSaver funds knew the profile of their members and would know when they might need access to funds - such as when an investor turned 65 and could get their money out or might need it to buy their first house.

Another challenge was putting a value on the investment. Unlike shares, which are priced daily on the market private companies were not valued on a regular basis.

Paul said even investing 1 per cent of a fund into a private company would increase the risk taken on but on the flipside the investment could also do well if the company had the right individuals making the decisions and the right talent.

Alternatively KiwiSaver providers can invest more overseas but Paul said that also had challenges, like currency risk.