Punakaiki Fund has another stab at raising money from retail investors
Punakaiki Fund, which makes long-term investments in high-growth New Zealand companies, has launched fundraising offers at $19 per share in New Zealand and Australia with no set amount being targeted.
The New Zealand offer due to open on Nov. 9 is a public one open to anyone through a product disclosure statement (PDS) while the Australian one opens today and is to wholesale investors only.
Both offers close at the end of the month and are on the same terms apart from the New Zealand one having a minimum investment of $1900 compared to a minimum $56,000 in Australia. It's the first time the fund has attempted to raise money across the Tasman.
The fund has rapidly grown from $1.5 million invested in four companies in 2014, to total assets of $20.3 million (including cash) today and investments in 18 businesses, said chairman Mike Bennetts in the PDS.
Based on the last few months' performance, these companies had annualised revenues of over $69 million and are achieving year on year revenue growth rates of over 50 percent when weighted by the fund's ownership interest in each.
New capital will go toward additional funding for existing investments, new investments, and to cover fund operating costs including management fees which amounted to $644,000 this financial year.
"We believe that New Zealand is faced with a large funding gap for investment into high-quality, high-growth companies," Mr Bennetts said.
That's why the fund hasn't set a maximum as fund manager Lance Wiggs said it could reasonably invest up to $50 million just in its existing portfolio which highlights "one of New Zealand's systemic issues."
The last time the fund tried a public offer was in 2013 when it made media headlines by failing to raise the $20 million it sought or even the $5 million minimum. It tried again under a private offer in April 2014, targeting qualified investors who had participated in the public offer and raised its first $1.5 million from just over 50 investors at $10 per share. It then invested in its first four companies, Mindscape, Influx, Timely, and Vibe Communications.
It has since raised a total of $13.4 million through three subsequent wholesale share offers, three options series, a retail crowd-funding offer, and the issue of new fund shares to settle an investment in Vend.
Wiggs said he's confident a public offer will go better this time around because of the fund's high-quality investments while the Australian offer is a bit of a punt to see how much interest there is. It doesn't signal an intention to start investing in Australian companies though, he said.
"Our expertise is in the New Zealand market and managing a portfolio of companies here. We want to build on that."
There's currently no easy out clause for the fund's 492 investors though Wiggs said the small number who have wanted to sell to date have been able to do so through a share matching service it offers.
Bennetts said among the board's top priorities are a path to a stock exchange listing in the next two to three years. Shareholders are mandated to vote on a potential listing, most likely on the NZX or ASX, in two years though Mr Wiggs said it could happen sooner if the fund's assets hit $100 million.
Punakaiki pays no dividends and is unlikely to in the near future. Most of its revenue comes from a change in the recorded fair value of its investments in portfolio companies which is decided by the board.
Material risks outlined in the PDS include one or more of the portfolio companies performing poorly or failing which would lower the net asset value per share. Under the board's valuation exercise for the offer, the values of five out of the 18 companies were written down since their last investment. Of those four, representing 13% of the portfolio by value, were due to underperformance and one due to a company accepting external investment at a lower price than expected.
The fund has a target of holding less than a fifth of the value of its assets in companies that need to raise additional capital before reaching a positive cash flow position. Currently a third of the portfolio are profitable, 11% breakeven, and 58% unprofitable.
The main cost is the management fee paid to the fund manager, LWCM, run by Wiggs and Chris Humphreys. LWCM has a 10-year management agreement with the fund that falls due in 2024 and receives a management fee equivalent to 2% of the fund's annual accounting net asset value.
An additional performance fee calculated at 20% of the increase in the fund's market value, excluding new capital raises, is triggered by certain events such as a sharemarket listing, a big distribution back to shareholders, or if the management agreement is ended. The fee is currently calculated at just under $1.4 million.
Wiggs owns 6 percent of the fund.