Episode 5 of the Curious Kiwi Capitalist Podcast

13th September 2019

My guest for this show is Ian Frame, retired CEO of Rangatira Investments, a long-term private equity firm.
In this episode we discuss

* what is a private equity firm, what's their fees, investors and strategy
* the difference between classic private equity (PE) firms and long-term PE firms
* what sort of investments they're after and their investment horizon
* stock market crashes, investor cynicism and regulation
* venture capital and angel investing
* and much more..



Show Notes

About
Ian Frame was the CEO of Rangatira, a long-term private equity company, for 11 years up to his retirement in 2014. Rangitira was one of the earliest private equity firms and Ian was one of a line of extraordinarily talented CEOs who have made it one of the most successful PE investors in NZ.
Originally an engineer, he was one of the first New Zealanders to get an MBA and worked at DFC duing the '70s before joinging Downer in an international role. He worked for investment companies often in a CEO change management role. He has retired in Taranaki but still is involved in angel investing.
Links
Ian Frame (LinkedIn)
Rangatira Investments
"Long-Term Private Equity with Ian Frame" show notes

Transcript: Long-Term Private Equity with Ian Frame

Bruce: Firstly, what is private equity?
Ian: Well in New Zealand private equity really falls into probably three categories actually. The first there are a number of private equity firms that go and raise capital from from superannuation funds and other large institutional parties and they will invest that money on their behalf. They take a management fee.
And usually they have to pay the funds back within five or seven or ten years. The second category of those that invest similarly that they have their own equity and I'm talking about the Rangatiras, Todd capitals those family funds, and most of them will have maybe up to 200 million of funds to invest and they invest longer term. They don't have to repay the money they can afford to hold on to it and ride out the cycles.
The third category is really in New Zealand there are a large number of family businesses and that includes virtually all of the farming sector that run based on capital provided by the family and the money they have accumulated from those companies over the years.
Bruce: In the case of the first category the what I'd call perhaps erroneously as a classic private equity firm, they would have the limited partners: the superannuation funds, the endowments perhaps, wealthy families and individuals and they would invest that money into a fund and then the private equity firm would get a management fee and a performance fee. What's the management fee and performance fees that they tend to get?
Ian: Well they vary but generally speaking they would take a 2% fee per annum on the funds invested and then they will take a percentage like 20% of the gain over and above a fixed return.
So the fixed return maybe eight percent per annum so they have to achieve that over the life of the investment and then if there's a surplus above that then they'll take that. So that's what's known as a 2 plus 20 arrangement. There have been times when that's been common have been times when that's been under pressure.
Where it's right today, I'm not a hundred percent sure, but it it's probably around that.
Bruce: And that firm will have different funds how long do those funds tend to last?
Ian: Well, they raise them on the basis that they have to be repaid within a certain period of time a...