Venture Capital Fund Act 2019

The Venture Capital Fund Act 2019 establishes the Venture Capital Fund, usually called the VCF, and gives the Guardians of New Zealand Superannuation responsibility for managing and administering it.

The Act says the VCF’s purpose is to contribute to a sustainable and productive economy by increasing venture capital available to New Zealand entities and helping New Zealand’s venture capital markets function more effectively over time.

It also aims for a market where more venture capital becomes available from sources other than the VCF, New Zealand entities are more likely to grow into successful and sustainable businesses, and the market becomes self-sustaining, including through more investment from New Zealand investors.

This is a market-structure law. It is about how a Crown-backed venture capital pool is created, controlled, invested and reported on. It is not a general compliance law for ordinary trading businesses.

If you are not raising venture capital, this Act will usually sit in the background. If you are a founder, fund manager or adviser working on venture investment, it becomes much more relevant.

The Act is aimed mainly at the VCF itself, the Guardians, the Minister’s policy and direction powers, investment managers, custodians and VCF investment vehicles.

Startups and SMEs are usually affected only when they seek funding from a fund or investment channel that uses VCF capital. The Act does not create a public right for every business to apply for funding, and it does not say that every New Zealand company qualifies.

The Act requires the policy statement to specify key concepts. These include what must be considered venture capital, what must be considered a New Zealand venture capital market, what must be considered a New Zealand entity, what must be considered a fund with a New Zealand connection, and how to calculate whether venture capital is being made available substantially to those entities or through those funds.

The policy statement must also set the minimum proportion of investment that must be made by other investors in one or more specified circumstances. So there are two layers to keep in mind. The Act sets the framework. The policy statement supplies important operating definitions and directions within that framework.

This Act usually becomes relevant to a business during a capital raise, fund formation exercise or investment structuring process. It is less relevant to normal trading activity.

If your investor is using VCF-backed capital, the investor may need to work within a framework that distinguishes between New Zealand entities, New Zealand-connected funds and other-investor participation settings. That does not mean the Act itself answers every practical question. It means the investor may be working inside a statutory structure rather than on commercial discretion alone.

The Act does not itself tell you that your company qualifies or does not qualify. It also does not create a direct filing obligation for founders. But it does show that some investment decisions are made within a formal framework that includes policy directions and internal investment policies.

For a business owner, the practical lesson is simple. If VCF-backed capital may be involved, identify that early and ask which part of the framework matters to your deal.

The Guardians are responsible for investing the VCF. They must invest it in New Zealand’s venture capital markets using best-practice investment management that is appropriate for institutional investment in those markets.

They must also manage and administer the VCF consistently with the policy statement in force and in a way that avoids prejudice to New Zealand’s reputation as a responsible member of the world community.

The Act allows interim investment outside New Zealand’s venture capital markets in limited situations. That can happen pending investments being made in those markets or otherwise on an interim basis.

The Minister must give the Guardians a policy statement. The Act requires that policy statement to contain some directions and allows it to contain others.

The Act gives the Minister direction powers, but those powers are limited. Some directions in the policy statement can be given only after consulting the Guardians. Other high-level directions require the Guardians’ agreement.

The policy statement may contain directions about time periods for making venture capital available, time periods for capital invested through the VCF to become available to be returned to the Crown, the Government’s commitment to a low-emissions economy, the Government’s commitment to an inclusive economy, and wider economic policy.

There is also an important statutory limit. The Minister must not include in a policy statement a direction that requires any part of the VCF to be invested in a particular entity or fund.

The Minister also must not give a direction to the Guardians in respect of the VCF except in accordance with this Act. That matters because it protects the framework from ad hoc directions outside the statutory process.

The Act allows the Guardians to appoint one or more investment managers to undertake investment of any part of the VCF. Different persons may be appointed for different parts of the VCF. The Guardians must state the powers and rights of each appointee in the instrument of appointment.

The Guardians may also appoint custodians to hold VCF property. A custodian holds the property of the VCF, or the relevant part of it, in the custodian’s name or in the name of authorised nominees.

The Act also allows all or any VCF investments to be held in an entity formed or controlled by the Guardians for holding, facilitating or managing VCF investments. These are VCF investment vehicles.

Interests in those vehicles are treated as VCF investments and part of the VCF. That means the investment path may involve more than one layer between the VCF and the underlying business receiving capital.

The Guardians must establish, and adhere to, investment policies, standards and procedures for the VCF. Those policies must be consistent with their duty to invest the VCF in accordance with the Act. They must also review those policies at least annually.

The Act gives a detailed list of what those policies must cover. That includes selection criteria for appointing investment managers, selection criteria for direct investment decisions, performance standards, reporting standards, ethical investment, the VCF management structure, governance for VCF investment vehicles, derivatives, risk management, valuation methods for investments not regularly traded on a public exchange, and prohibited or restricted investments.

For businesses, this does not create a direct statutory compliance checklist. But it does show that VCF-linked investment is expected to sit inside a documented institutional framework.

If you are dealing with a VCF-backed investor, expect a structured process and clear internal governance on the investor side.

The Minister may pay money into the VCF. The VCF consists of Crown contributions, VCF investments, money accruing from investment of the VCF and any other money lawfully payable into it.

The VCF is not an entity separate from the Crown, and the VCF is the property of the Crown. The Act also says VCF money is not public money for the purposes of the Public Finance Act 1989.

Money may be paid out of the VCF only for specified purposes. These include fees payable to an investment manager or custodian, obligations directly related to operating the VCF, taxation liabilities, payments to the Crown under agreement between the Guardians and the Minister, and payments required to comply with a winding-up direction. Payments out must be authorised by the Guardians.

The Act also places a borrowing limit on the Guardians in respect of the VCF. Without the approval of the Minister of Finance, they may not borrow, mortgage or charge VCF property as security, or hold a financial instrument that places or may place a liability or contingent liability on the VCF or the Crown.

The Act sets out a structured process for winding up all or part of the VCF. This is not something that can happen informally.

Before a winding-up direction can be given, a report must be prepared on the amount of venture capital that would be available to New Zealand entities if the VCF or part of it were wound up, and whether New Zealand’s venture capital markets would be likely to function effectively.

The Minister must take that report into account, consult the Guardians, be satisfied the markets would still be likely to function effectively, and make reasonable efforts to agree a divestment programme with the Guardians.

When making efforts to agree a divestment programme, both the Minister and the Guardians must have regard to the desirability of divesting over a time period most likely to maximise returns.

The accountability provisions are some of the clearest ongoing obligations in the Act. They matter because they show that the VCF is not just an investment pool. It is also subject to a formal reporting framework.

The Guardians must ensure financial statements for the VCF are prepared for each financial year. Those annual financial statements must be prepared in accordance with generally accepted accounting practice.

The VCF is treated as if it were a public entity for audit purposes, and the Auditor-General is its auditor. The Guardians must forward the annual financial statements to the Auditor-General no later than 90 days after the end of the financial year. The Auditor-General must issue an audit opinion within 30 days of receipt and return the statements with the audit report attached.

The Guardians’ annual report under the Crown Entities Act must also include a substantial set of VCF-specific material.

This page explains the Act itself. Before relying on it for a live transaction, check the current policy statement and any current directions made under the Act, because the Act requires those instruments to carry important operating detail.

You should also confirm the actual investment path. A deal may involve the Guardians, an appointed investment manager, a custodian, a VCF investment vehicle or an underlying fund.

If you are a founder, do not assume the Act itself answers whether your company qualifies for investment. If you are a fund manager, do not assume the Act alone answers all operational settings. The framework depends on both the Act and the current policy instruments made under it.

The transaction documents, corporate approvals, tax position and investment structure still need separate review.