The government’s $300 million venture capital fund cleared for take-off last week after receiving almost-unanimous parliamentary support.
However, the Venture Capital Fund (VCF) legislation copped a few last-minute changes including two clauses extending direct government influence over the proposed investment vehicle.
Under the amendments, the VCF will now have to consider the objective of creating an “inclusive economy” as part of its investment process.
The Finance and Expenditure Committee (FEC) report says the original VCF plan allowing the government to set directions for the fund via a ministerial “policy statement” could have led to “investment in less diverse and less inclusive ventures”.
“We do not wish to intervene in the investment decisions,” the FEC report says. “We note that it could prove difficult to attract more capital in the long run if the Fund had specific objectives for using investments to promote diversity. Nonetheless, we recognise that achieving an inclusive economy is an important part of the Government’s overall economic strategy.” Labour’s Deborah Russell chaired the FEC.
The “inclusive” clause survived the legislation’s third reading along with another granting the government powers to require the VCF to provide specific information in annual reports.
Originally, the bill allowed the government to require the VCF to supply additional information only outside the annual report.
“However, we understand there may be a need to ensure that annual reporting on the Fund provides relevant data to support capability development in the venture capital market and meets the various needs of stakeholders,” the FEC report says.
The final VCF version also includes an explicit objective for the fund to “encourage the development of more self-sustaining [NZ] private venture capital funds”.
Floated as a concept last year, the VCF is intended to invest in local growth businesses seeking between $2 million to $20 million via a fund-of-funds vehicle administered by the Venture Capital Investment Fund and governed by the NZ Superannuation Fund (NZS).
As reported earlier, NZS chief, Matt Whineray, had some concerns about the initial proposal including the “legislative architecture”, timeline and government influence on investment decisions.
In the final debate, several National Party members also critiqued the extended government influence over VCF investment calls.
Andrew Falloon, for instance, noted that the legislation “essentially means… that [NZS] will be required to look at other things other than just growth”.
“[NZS will] be required to look at things that will yield lower returns than if they went for higher returns,” Falloon said. “My view is that, certainly when it comes to our superannuation and in the money that we are going to rely on in our retirement, the guardians should be looking for, ideally, the biggest returns they can get, rather than other considerations.”
But Green MP, Chloe Swarbrick, argued that the VCF changes did not “go far enough”.
“… because it allows for, for example, the opening of a window where there is per chance, in some distant future, an oscillation of Government and other parties find themselves in charge of the reins of this country, that we may end up with an unfortunate situation like what we’re presently seeing with the State-sanctioned investment in fossil fuels under ACC at present—that billion dollars which is presently invested in those fossil fuels,” Swarbrick told parliament. “It is quite simple. As we all know, every Parliament is sovereign unto itself to change those directions, which any Government may give.”
She earlier called for the government to force the Accident Compensation Corporation (ACC) fund to sell down all its fossil fuel investments.
Despite the National objections, all members bar one – Act Party’s David Seymour – voted for the VCF legislation as is.
Seymour said “this abomination of a bill — [is] a house of cards built on a series of fallacies”.
“… in a pathetic series of contributions in this debate over the last few minutes and hours, we have heard absolutely no justification, logic, or explanation for why taking $300 million of taxpayers’ money and putting it into a venture investment fund is going to help us achieve that goal,” he said.
The VCF is expected to be in operation by next June, funded by $240 million of contributions originally intended for the NZS and $60 million of NZVIF money.
In addition to the last-minute amendments, the VCF bill was split into two parts with the necessary NZS governance changes shunted into the New Zealand Superannuation and Retirement Income Amendment Bill.