Australia-based private equity player, Pacific Equity Partners (PEP), is set to hit the NZ market running with a version of its wholesale ‘Gateway’ strategy dressed for local tax conditions.
Alex Ovchar, PEP managing director partner and client group, said the new Gateway portfolio investment entity (PIE) vehicle – hosted by Apex Group subsidiary, FundRock NZ – has been seeded by a number of local investors who are already well known to the firm.
“They encouraged us to launch the PIE,” Ovchar said.
The original Gateway fund is already available in NZ via the FNZ and Apex (ex MMC) adviser platforms but to date flows have almost exclusively come from Australian investors: the PIE option should change the equation.
“We’ve had materially more interest from NZ investors for the PIE than we thought we would,” he said. “NZ investors have a very sophisticated understanding of private equity.”
Ovchar said the PIE sleeve would likely become a “meaningful part” of the Gateway strategy, which has garnered about A$500 million from Australian wholesale investors since launch early in 2022.
Established in 1998, PEP now boasts over A$11 billion in assets under management and A$48 billion of transactions under its belt since inception.
Despite its Australian origins, the manager began life servicing mainly US endowments with institutional private equity deals but has broadened its client base in recent years to target the trans-Tasman private wealth sphere.
About a third of PEP transaction deal flow comes via NZ, Ovchar said with its 35 per cent stake in the FirstCape wealth management roll-up the latest to make headlines.
The group has also been involved of late in buyouts with a number of iconic NZ brands such as Griffins, Tegel and Mauka Health.
But the Gateway PIE plugs into the nascent private equity ‘single asset’ fund strategy, offering new investors an entry point to profitable, high-growth companies and a convenient exit for incumbent owners.
“Generally, private equity funds buy and grow assets over the course of four to six years or so before selling,” Ovchar said. “In some instances, PE managers would like to hold the asset for a longer-term period given the ongoing growth but want to provide existing investors the opportunity to exit. In the right circumstances, this is a great opportunity to invest in a ‘trophy’ asset mid-step on a successful growth journey.”
The single-asset strategy resolves the dilemma by spinning off the ‘trophy’ company into a stand-alone fund held by the manager along with new investors (or existing ones who want to roll over into it).
Gateway targets such “star” assets offered by managers in the PEP network, filtered through an in-house research process.
Ovchar said Gateway currently houses about two dozen companies with additional holdings of listed private equity funds (about 20 per cent of total assets) for liquidity purposes.
Unlike institutional-level private equity, the PEP fund offers monthly redemptions supported by the listed holdings and investor cashflows, he said.
Over the last two years Gateway has delivered on-target returns of more than 15 per cent net of fees (estimated at about 2 per cent plus a 15 per cent performance top-up for exceeding an 8 per cent hurdle rate).
At launch the PEP PIE is limited to wholesale clients with a minimum investment of $50,000.
Ultimately, however, the manager would look to open up the Gateway PIE to retail investors, Ovchar said, amid burgeoning demand for private assets across all distribution channels.