In a ground-breaking move, the New Plymouth District Council (NPDC) investment fund has ploughed almost $22 million into a Mercer global unlisted private equity fund.
The allocation by the $270 million NPDC Perpetual Investment Fund (PIF) is the first time a NZ entity has invested via a Mercer Private Markets offshore private equity vehicle.
Under the deal, PIF has placed $21.5 million in the, fourth in a series, Mercer Private Investment Partners Fund (PIP IV), which recently closed its global fund-raising round at about $2.5 billion – the highest figure raised globally in a private markets fund-of-funds structure since 2012.
Late last year Mercer was appointed manager of the PIF following a long review process. Previously, PIF asset consultant, Melville Jessup Weaver (MJW), revamped the fund’s strategic asset allocation, cutting Australasian property and shares exposure to zero while targeting about 40 per cent in global shares and 35 per cent split equally between private equity and ‘alternatives’.
Mercer NZ CIO, Philip Houghton-Brown, said while listed assets remain high on the PIF agenda “a key part of the new approach has been significant allocations to Private Equity and other unlisted asset classes including Infrastructure and Real Estate”.
Houghton-Brown said the global private equity exposure would enable the PIF to “take advantage of [its] long-term horizon and seek higher returns in a low-yield environment”.
He said the PIP IV taps into the expertise of up to 15 specialist managers and 250 underlying companies covering private equity, infrastructure, debt, real estate and “sustainable opportunities”.
Houghton-Brown said to date NZ institutional investors have had limited opportunities to invest in global private equity, despite a reasonable level of exposure to domestic varieties of the asset class.
“Some NZ wholesale investors like domestic private equity,” he said. “This global private equity exposure is a good complement.”
While the PIF was first to the party, Houghton-Brown said a number of other NZ institutional investors were sizing up global private equity opportunities. Mercer has already begun preparing for PIP V, he said, which is due to go to market later this year.
“Mercer intends to launch a new PIP fund every two years to provide clients with the opportunity to gain exposure across vintages and avoid over-concentration in any point of the economic cycle,” he said.
However, Houghton-Brown said the PIPs only suit investors with a long-term investment horizon and “governance structures able to complete the required due diligence” of these more complex strategies. PIP IV has a projected lifetime of about 15 years with limited liquidity and income along the way.
He said the Mercer KiwiSaver scheme did not participate in the PIP IV fund-raising.
The Luxembourg-domiciled Mercer PIP IV comprises “six sleeves” covering: senior private debt (US$700 million) infrastructure (US$660 million); private equity (US$546 million); junior private debt (US$511 million); sustainable opportunities (US$122 million); and, real assets (US$52 million).
Houghton-Brown said PIP IV, which currently has 12 underlying managers, is predominately exposed to North America and Europe with 10-20 per cent in “Asia and the rest of the world”.
The PIP funds are managed by the Mercer Private Markets teams based in seven locations including the US, Europe, Asia and Australia.