Venture Capital Fund Bill

Venture Capital Fund Bill

Government Bill

167—1

Explanatory note

General policy statement

Introduction

This Bill—

  • establishes a Venture Capital Fund (the VCF); and

  • provides for the Guardians of New Zealand Superannuation (the Guardians) to manage and administer the VCF.

Early-stage capital markets in New Zealand

Well-functioning early-stage capital markets are required to support investment in new internationally competitive firms and capabilities. This in turn will support New Zealand to shift to a more productive, sustainable, and inclusive economy.

Government interventions have had limited success to date in developing a well-functioning early-stage domestic venture capital industry, particularly in the Series A and B funding stages.

Many early-stage high-growth companies continue to struggle to access the capital they need to develop to their potential. This leads them to being either constrained in their growth or having to seek foreign investment to overcome this funding gap, and may require start-ups to sell down prematurely or move abroad. This may also result in the shareholder value of any success accruing to offshore investors rather than being recycled back to domestic investors and the domestic venture capital ecosystem. This limits the economic benefits to New Zealand from its research and development and science investments.

This Bill establishes a Venture Capital Fund with the purpose of contributing to a sustainable and productive economy by—

  • increasing the venture capital available to New Zealand’s entities; and

  • developing New Zealand’s venture capital markets to function more effectively so that over time—

    • more venture capital is available to New Zealand entities from sources other than the VCF; and

    • New Zealand entities that receive venture capital are more likely to grow into successful and sustainable businesses.

Institutional investors exert control over a significant amount of capital, and provide signals to smaller New Zealand or overseas investors on where to invest. However, New Zealand’s institutional investors have not yet invested in domestic venture capital markets to a material extent. More developed venture capital markets, with better-resourced and connected fund managers that generate returns appropriate for the sector, should help attract private capital and new investors into this sector. These may include domestic institutions, KiwiSaver fund managers, corporates, iwi, private family investments, retail investors, and some offshore investors.

The Guardians will manage and administer the VCF, utilising best-practice investment management that is appropriate for institutional investments in New Zealand’s venture capital markets (subject to high-level Government policy requirements). The Bill proposes that the Guardians (itself or through a VCF investment entity, such as a limited partnership) will enter into a contract or other arrangement with New Zealand Venture Investment Fund Limited (NZVIF), whereby NZVIF will invest the VCF capital using a “fund of funds” model on establishment.

The benefit of requiring the Guardians to manage and administer the VCF is to leverage its existing frameworks and expertise to apply best-practice investment management oversight of NZVIF as the initial designated manager of the VCF. In turn, the intent is that NZVIF will facilitate best practice with underlying venture capital fund managers.

The fund of funds model will make investments into or alongside privately managed venture capital (VC) funds. The role of the fund of funds manager is to select private funds that meet the requisite criteria for investment.

The benefits of NZVIF being the initial investment manager are that the VCF will benefit from NZVIF’s existing market relationships, its experience of operating in the early-stage capital markets, and its expertise and experience from managing a domestic venture capital fund of funds programme since 2002.

The private VC funds will make decisions on which companies to support, how to support them, and when to stop supporting them. The private VC funds will be required to, among other criteria, prove their capability and that they are able to raise a certain minimum amount of private capital before receiving investment from the VCF. The expectation is that a self-sustaining domestic venture capital market with sufficient capacity to service demand will develop as a result.

Why Bill is required

A Bill is required as the Guardians is an autonomous Crown entity, established under the New Zealand Superannuation and Retirement Income Act 2001 (the NZSRI Act) to manage and administer the New Zealand Superannuation Fund (the NZSF). Under the NZSRI Act, the Guardians have no authority to administer and manage the VCF.

Amendments to New Zealand Superannuation and Retirement Income Act 2001

To ensure that the Guardians can administer the VCF, this Bill amends the NZSRI Act to widen the Guardians’ responsibilities to include administering the VCF. This is in addition to, but separate from, the Guardians’ role in managing and administering the NZSF.

The proposed amendments make no changes to—

  • the functioning of New Zealand superannuation:

  • the New Zealand Superannuation Fund:

  • the Guardians’ role and responsibilities in managing and administering the New Zealand Superannuation Fund.

Venture Capital Fund Bill

Part 2 of this Bill will become the Venture Capital Fund Act. Rather than amend the NZSRI Act to include clauses to establish the VCF, it is more appropriate to bring into force a new Act for this specific purpose. The NZSF and VCF are separate funds, with separate mandates. There are no changes to the Guardians’ mandate as regards the NZSF.

However, the NZSRI Act provides a useful starting point for the new Venture Capital Fund Act. One of the key similarities is that the Bill establishes the VCF as a stand-alone fund that is the property of the Crown.

The Bill requires the Guardians to invest the VCF in accordance with best-practice investment management that is appropriate for institutional investment in New Zealand venture capital markets. This duty is subject to requirements to—

  • ensure that a substantial proportion of the VCF’s capital will be made available to New Zealand entities through venture capital funds with a New Zealand connection. However, a proportion of the capital may go to foreign entities, or to foreign funds that have some connection to New Zealand, where this would support the market development objective (for example by adding to the expertise of local funds through overseas connections); and

  • comply with, or have regard to, directions given by the Minister via a policy statement; and

  • invest the VCF in a way that avoids prejudice to New Zealand’s reputation as a responsible member of the world community; and

  • enter into an arrangement with NZVIF to allow NZVIF to undertake investment of the VCF via a fund of funds model.

The policy statement will guide the core parameters and settings under which the Guardians and NZVIF will operate. The policy outcome is dependent on both the effectiveness of these parameters and settings and the ability for the Guardians to maximise the performance of the VCF within these settings.

The policy statement can also contain a range of items that the Guardians must, in managing and administering the VCF, have regard to, including the Government’s—

  • expectation as to when venture capital will be made available to New Zealand entities through the VCF; and

  • expectation as to when the capital invested through the VCF will be returned to the Crown; and

  • specified economic policy.

The policy statement also allows Ministers and the Guardians to include, by mutual agreement, other settings to the overall investment approach. This provides the flexibility to adjust the overall investment approach, while balancing the need for the Guardians to be accountable for managing and administering the VCF consistent with the overall investment approach. Additional settings and parameters might include the proportion of capital that can be committed to funds and firms outside New Zealand, the minimum size of a qualifying private fund, or how returns are shared and paid out.

Any changes to the policy statement will not affect any existing investments, matters, commitments, or contracts at the time the policy is amended.

Guardians may apportion obligations (including expenses)

The Bill allows the Guardians to apportion obligations (including expenses) between the NZSF and the VCF in a manner they consider reasonable, if they consider that an obligation is related to both the NZSF and the VCF. The expectation is that the way expenses and obligations are addressed as between the NZSF and appropriations will remain the same (and that a substantially similar approach will be applied for the VCF as well).

Requirement for Guardians to use NZVIF

The Bill requires that the Guardians and NZVIF make reasonable efforts to reach an arrangement. If no arrangement can be concluded, the Minister can specify the terms of an arrangement between NZVIF and the Guardians. This approach reflects the intention to draw on the respective expertise of the Guardians and NZVIF. However, the Guardians retain the right to cancel the arrangement in accordance with the terms of the arrangement between the Guardians and NZVIF.

Winding up

The Bill establishes a process by which the Minister may give a direction so that all or part of the VCF can be wound up and returned to a Crown Bank Account.

Bill to be divided into 2 separate Bills

It is intended that this Bill be divided into the following 2 separate Bills at the committee of the whole House stage:

  • a New Zealand Superannuation and Retirement Income Amendment Bill:

  • a Venture Capital Fund Bill.

Departmental disclosure statement

The Treasury is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 provides for the Bill to come into force on the day after the date on which it receives the Royal assent.

Part 1Amendments to New Zealand Superannuation and Retirement Income Act 2001

This Part amends the New Zealand Superannuation and Retirement Income Act 2001 (the 2001 Act). In summary, the changes are as follows:

  • the functions of the Guardians of New Zealand Superannuation (the Guardians) are amended to include the function of managing and administering the Venture Capital Fund (the VCF) established under Part 2 of the Bill (clause 10):

  • the provisions about political commitment to New Zealand superannuation are amended so that they do not apply to the changes made by this Bill relating to the VCF. That is, the status quo has been retained so that the provisions continue to relate only to New Zealand superannuation (clauses 13, 14, and 16):

  • new section 41A is added to allow the Guardians to apportion expenses or other obligations between the Fund and the VCF where those obligations relate to both the Fund and the VCF (clause 8):

  • a provision that protects the validity of certain transactions even though the Guardians may fail to comply with certain legislation is extended to cover Part 2 of this Bill (clause 9):

  • a provision about information in the Guardians’ annual report has been restricted to the New Zealand Superannuation Fund (clause 11). However, there is an equivalent provision for the VCF in clause 56:

  • a provision relating to a review of how effectively and efficiently the Guardians are performing their functions has been restricted to functions relating to the New Zealand Superannuation Fund (clause 12):

  • the provisions relating to the purpose of the 2001 Act, the outline of Part 2 of that Act, and definitions have been consequentially amended (clauses 4, 5, and 7).

Part 2Venture Capital Fund

Preliminary provisions

Clause 18 sets out that the purpose of the Part is to establish the VCF and to provide for the Guardians to manage and administer that fund.

Clauses 19 to 22 provide for other preliminary matters, including an outline, definitions, and transitional provisions.

Establishment of Venture Capital Fund

Clauses 23 to 27 set out various matters relating to the establishment of the VCF. The provisions are similar to sections 37, 38, 40, and 41 of the 2001 Act. The Bill does not include provisions from the 2001 Act relating to required capital contributions or a Crown Bank Account.

Clause 23 establishes the VCF.

Clause 24 sets out the purpose of the VCF.

Clause 25 sets out what is the property of the VCF.

Clause 26 clarifies that the VCF is the property of the Crown.

Clause 27 provides for the types of payments that may be made from the VCF.

Contributions to VCF

Clause 28 allows the Minister to pay money into the VCF.

Acquisition of financial products, borrowing, guarantees, indemnities, and derivatives

Clause 29 provides that certain restrictions in the Crown Entities Act 2004 do not apply in relation to the VCF. These relate to acquiring financial products, borrowing, guarantees, indemnities, and derivatives. This is similar to section 49 of the 2001 Act.

Clause 30 provides that the Guardians may only borrow money in respect of the VCF with the approval of the Minister of Finance. This is similar to section 50 of the 2001 Act.

Investment of VCF

Clause 31 provides that the Guardians are responsible for investing the VCF.

Clause 32 requires the Guardians to invest the VCF in New Zealand’s venture capital markets using best-practice investment management that is appropriate for institutional investment in those markets.

Clause 33 requires the Guardians to manage and administer the VCF in a manner consistent with—

  • the policy statement given by the Minister under clause 34; and

  • avoiding prejudice to New Zealand’s reputation as a responsible member of the world community (which is consistent with section 58(2)(c) of the 2001 Act).

Clause 34 allows the Minister to give to the Guardians a policy statement that sets out various directions containing high-level requirements for the investment of the VCF.

Clause 35 sets out various directions that a policy statement either must or may contain. The directions can only be included if the Minister has consulted the Guardians.

The directions that the policy statement must contain and that the Guardians must give effect to include—

  • specifying what must be considered to be venture capital and a New Zealand venture capital market:

  • requiring the venture capital to be made available wholly or substantially to New Zealand entities:

  • requiring the venture capital to be wholly or substantially made available through funds with a New Zealand connection (to the extent that the VCF is invested through funds):

  • setting the minimum proportion of investment that must be made by other investors.

The directions that the policy statement may contain and that the Guardians must have regard to include—

  • the Government’s expectations as to the time period during which venture capital will be made available to entities:

  • the Government’s expectations as to the time period during which the capital invested through the VCF will become available to be returned to the Crown:

  • the Government’s commitment to a low-emissions economy:

  • the Government’s wider economic policy.

Clause 36 allows the Minister to authorise departures from certain directions.

Clause 37 contains miscellaneous provisions about directions.

Clause 38 sets out additional directions that the policy statement may contain. However, these may be included only if the Guardians agree. These directions may include—

  • requirements concerning the use of an overarching model or approach for investing the VCF:

  • other high-level matters to ensure that the VCF achieves the purpose set out in clause 24.

Clause 39 prevents the policy statement from including a direction that requires any part of the VCF to be invested in a particular entity or fund.

Clauses 40 to 45 set out other matters relating to the investment of the VCF. Those provisions are similar to sections 59A to 63 of the 2001 Act. However, an equivalent of section 59 of the 2001 Act has not been included (this provision prevents the New Zealand Superannuation Fund from controlling other entities).

In summary,—

  • clause 40 relates to VCF investments being held in an entity that is formed or controlled by the Guardians for the purpose of holding, facilitating, or managing the investments of the VCF (a VCF investment vehicle). Under clause 41, VCF investment vehicles are not required to prepare separate financial statements or annual reports:

  • clauses 42 and 43 require the Guardians to establish, and comply with, investment policies, standards, and procedures for the VCF:

  • clause 44 allows the Guardians to appoint an investment manager to undertake investment of any part of the VCF:

  • clause 45 allows the Guardians to appoint a custodian of the VCF or any part of it.

Directions for winding up VCF

Clauses 46 and 47 allow the Minister to give directions to the Guardians regarding the winding up of the VCF or of a part of the VCF. The process that must be followed before a direction is given includes—

  • a report being prepared on the impact of the winding up on New Zealand’s venture capital markets:

  • consultation with the Guardians:

  • the Minister being satisfied that, if the winding up occurs, New Zealand’s venture capital markets would be likely to function effectively:

  • the Minister making reasonable efforts to agree with the Guardians on a divestment programme.

Other provisions about policy statement and directions

Clause 48 provides for the amendment or replacement of the policy statement and directions.

Clause 49 provides that changes to the policy statement and directions do not affect existing arrangements.

Clause 50 provides for the publication of the policy statement and directions and for copies to be presented to the House of Representatives.

Clause 51 provides for reporting on compliance with the directions. Clause 52 imposes a limit on directions. These provisions are similar to section 64(2)(b), (6), and (7) of the 2001 Act.

Clause 53 clarifies that certain provisions of the Crown Entities Act 2004 do not apply to the directions under the Bill.

Accountability

Clauses 54 to 57 impose accountability requirements for the VCF that are similar to the requirements for the New Zealand Superannuation Fund under sections 66 to 69 of the 2001 Act. In summary,—

  • clauses 54 and 55 require financial statements for the VCF to be prepared in accordance with generally accepted accounting practice and for those statements to be audited by the Auditor-General:

  • clause 56 requires the annual report of the Guardians to contain certain information about the VCF:

  • clause 57 requires the Guardians to report to the Minister on the VCF at the intervals that the Minister may require.

Schedule 1 provides for transitional provisions. In summary, the schedule—

  • requires the Guardians and New Zealand Venture Investment Fund Limited (NZVIF) to make reasonable efforts to ensure that a certain contract or other arrangement is entered into. This is a contract or other arrangement to appoint NZVIF to undertake investment of the whole of the money of the VCF using a fund of funds model:

  • allows the Minister to specify a contract or other arrangement that is binding on the Guardians (or a VCF investment vehicle) and NZVIF if the contract or arrangement is not entered into.

Schedule 2 amends—

  • the Crown Entities Act 2004 to provide that NZVIF will no longer have an exemption from section 165 of that Act. This will allow the Minister of Finance to require NZVIF to pay to the Crown the whole or a part of NZVIF’s net surplus:

  • the Income Tax Act 2007 to provide for the tax treatment of income derived and expenditure incurred by the Crown in activities relating to the VCF.

Hon David Parker

Venture Capital Fund Bill

Government Bill

167—1

Contents

Explanatory note
1Title
2Commencement
3Principal Act
4Section 3 amended (Purpose)
5Section 5 amended (Interpretation of Parts 2 and 3 and Schedule 3)
6Part 2 heading amended
7Section 36 amended (Outline of Part)
8New section 41A inserted (Guardians may apportion obligations)
41AGuardians may apportion obligations
9Section 49A amended (Saving of certain transactions)
10Section 51 amended (Functions)
11Section 68 amended (Annual report)
12Section 71 amended (Performance reviews)
13Section 72 amended (Political commitment)
14Section 73 amended (Amendments to Act)
15Schedule 3 amended
16Schedule 4 amended
17Other amendments
18Purpose of Part
19Outline of Part
20Interpretation
21Transitional, savings, and related provisions
22Part binds the Crown
23Establishment of VCF
24Purpose of VCF
25Property of VCF
26Ownership of VCF
27Payments out of VCF
28Contributions to VCF
29Crown Entities Act 2004 provisions about acquisition of financial products, borrowing, guarantees, indemnities, and derivatives do not apply
30Borrowing
31Responsibility for investing
32Guardians must use best-practice investment management
33Guardians must manage and administer the VCF in certain manner
34Minister must give policy statement that specifies high-level requirements
35Directions in policy statement that must be consulted on
36Minister may approve departure from direction in particular circumstances
37Other provisions about directions under section 35
38Directions in policy statement that require Guardians’ agreement
39Limits on policy statement
40VCF investment vehicles
41VCF investment vehicles not required to prepare statements or annual reports
42Guardians must establish investment policies, standards, and procedures
43Contents of statements of investment policies, standards, and procedures
44Investment management
45Custodianship of VCF
46Minister may give directions for winding up
47Process for directions for winding up
48Amendment or replacement of policy statement or directions
49Amendment or replacement of policy statement or directions does not affect existing matters
50Publication of policy statement or directions
51Reporting relating to directions
52Limit on directions relating to VCF
53Certain Crown Entities Act 2004 provisions about directions do not apply
54Financial statements of VCF
55Auditor-General is auditor of VCF
56Annual report
57Reporting by Guardians on VCF

The Parliament of New Zealand enacts as follows:

1 Title

This Act is the Venture Capital Fund Act 2019.

2 Commencement

This Act comes into force on the day after the date on which it receives the Royal assent.

Part 1 Amendments to New Zealand Superannuation and Retirement Income Act 2001

3 Principal Act

This Part amends the New Zealand Superannuation and Retirement Income Act 2001 (the principal Act).

4 Section 3 amended (Purpose)

(1)

In section 3(b), after “Fund”, insert “(the Fund)”.

(2)

Replace section 3(d) with:

(d)

to establish a Crown entity called the Guardians of New Zealand Superannuation, which will manage and administer the Fund and the Venture Capital Fund established under the Venture Capital Fund Act 2019:

5 Section 5 amended (Interpretation of Parts 2 and 3 and Schedule 3)

In section 5(1), insert in its appropriate alphabetical order:

VCF means the Venture Capital Fund established under section 23 of the Venture Capital Fund Act 2019

6 Part 2 heading amended

In the Part 2 heading, after Fund, insert and Guardians of New Zealand Superannuation.

7 Section 36 amended (Outline of Part)

(1)

In section 36(c), after “Fund”, insert “and the VCF”.

(2)

In section 36(g), after “Fund”, insert “, the VCF,”.

8 New section 41A inserted (Guardians may apportion obligations)

After section 41, insert:

41A Guardians may apportion obligations

(1)

This section applies if the Guardians reasonably consider that an expense or other obligation is related to the operation of both the Fund and the VCF.

(2)

The Guardians may apportion the obligation in the manner that the Guardians consider reasonable so as to determine—

(a)

the part of the obligation that is to be met out of the Fund under section 41(2)(b); and

(b)

the part of the obligation that is to be met out of the VCF under section 27(1)(b) of the Venture Capital Fund Act 2019.

(3)

The part of the obligation determined in relation to the Fund or the VCF must be treated as an obligation that is directly related to the operation of the Fund or the VCF (as the case may be).

9 Section 49A amended (Saving of certain transactions)

(1)

In section 49A(1) and (3), after “this Act”, insert “, the Venture Capital Fund Act 2019,”.

(2)

After section 49A(1)(b), insert:

(ba)

a VCF investment vehicle referred to in section 40 of the Venture Capital Fund Act 2019; or

10 Section 51 amended (Functions)

Replace section 51(1) with:

(1)

The functions of the Guardians are to manage and administer—

(a)

the Fund in accordance with this Act; and

(b)

the VCF in accordance with Part 2 of the Venture Capital Fund Act 2019.

11 Section 68 amended (Annual report)

In section 68(g), after “Guardians”, insert “in relation to the Fund”.

12 Section 71 amended (Performance reviews)

(1)

In section 71(1), after “functions”, insert “in relation to the Fund”.

(2)

In section 71(4)(a) and (b), after “Guardians”, insert “in relation to the Fund”.

13 Section 72 amended (Political commitment)

After section 72(4), insert:

(5)

In this section, a reference to Part 2 is a reference to Part 2 to the extent that it relates to the Fund (rather than to the VCF).

14 Section 73 amended (Amendments to Act)

After section 73(2), insert:

(2A)

Subsection (2)(a) relates to amendments to Part 2 to the extent that the amendments relate to the Fund (rather than to the VCF).

15 Schedule 3 amended

In Schedule 3, replace clause 39 with:

39 Additional persons to whom delegations can be made

(1)

The board may, in relation to the Fund, delegate any of the functions or powers of the board or the entity to all or any of the following, despite section 73(1)(d) of the Crown Entities Act 2004:

(a)

a person appointed to undertake the investment of any part of the Fund under section 62:

(b)

a custodian:

(c)

a Fund investment vehicle that is formed or controlled under section 59A.

(2)

The board may, in relation to the VCF, delegate any of the functions or powers of the board or the entity to all or any of the following, despite section 73(1)(d) of the Crown Entities Act 2004:

(a)

a person appointed to undertake the investment of any part of the VCF under section 44 of the Venture Capital Fund Act 2019:

(b)

a person appointed under section 45 of the Venture Capital Fund Act 2019 to act as custodian of the VCF, or any part of the VCF:

(c)

a VCF investment vehicle that is formed or controlled under section 40 of the Venture Capital Fund Act 2019.

16 Schedule 4 amended

In Schedule 4, in the Part 2 heading, after Act, insert (to extent that it relates to Fund).

17 Other amendments

The Acts set out in Schedule 2 are amended as set out in that schedule.

Part 2 Venture Capital Fund

Preliminary provisions

18 Purpose of Part

The purpose of this Part is—

(a)

to establish a Venture Capital Fund; and

(b)

to provide for the Guardians of New Zealand Superannuation to manage and administer that fund.

19 Outline of Part

This Part

(a)

establishes the Venture Capital Fund (the VCF):

(b)

provides for payments into and out of the VCF:

(c)

provides for the Guardians of New Zealand Superannuation to manage and administer the VCF:

(d)

requires the Guardians to invest the VCF in New Zealand’s venture capital markets:

(e)

empowers the Minister to give certain directions to the Guardians in respect of the VCF:

(f)

provides for other matters relating to the VCF.

20 Interpretation

(1)

In this Part, unless the context otherwise requires,—

board means the Guardians of New Zealand Superannuation board

custodian means a person appointed under section 45(1) to act as custodian of the VCF, or any part of the VCF

divestment programme has the meaning set out in section 47(1)(e)

entity means any person, whether corporate or unincorporate

Guardians means the entity called the Guardians of New Zealand Superannuation established under section 48 of the New Zealand Superannuation and Retirement Income Act 2001

invest includes, without limitation, to carry on any activity, do any act, or enter into any transaction that the Guardians consider to be for the purpose, directly or indirectly, of managing, or enabling the management of, the VCF

Minister means the Minister of Finance, or other Minister of the Crown who, under the authority of any warrant or with the authority of the Prime Minister, is responsible for the administration of this Part

subsidiary

(a)

means a subsidiary within the meaning of sections 5 to 8 of the Companies Act 1993; and

(b)

includes an entity that is classified as a subsidiary in any relevant financial reporting standard (within the meaning of section 5 of the Financial Reporting Act 2013)

VCF means the Venture Capital Fund established under section 23.

(2)

A function, power, or duty performed or exercised in respect of a part of the VCF may be performed or exercised in respect of—

(a)

a specified proportion of the VCF; or

(b)

a part of the VCF that is defined in any other way.

(3)

In this Act, unless the context otherwise requires, Crown, Crown Bank Account, financial year, Government, public money, and Treasury have the same meanings as in section 2(1) of the Public Finance Act 1989.

21 Transitional, savings, and related provisions

The transitional, savings, and related provisions set out in Schedule 1 have effect according to their terms.

22 Part binds the Crown

This Part binds the Crown.

Establishment of Venture Capital Fund

23 Establishment of VCF

This section establishes the Venture Capital Fund (the VCF).

Compare: 2001 No 84 s 37

24 Purpose of VCF

The purpose of the VCF is to contribute to a sustainable and productive economy by—

(a)

increasing the venture capital available to New Zealand entities; and

(b)

developing New Zealand’s venture capital markets to function more effectively so that over time—

(i)

more venture capital becomes available to New Zealand entities from sources other than the VCF; and

(ii)

New Zealand entities that receive venture capital become more likely to grow into successful and sustainable businesses.

25 Property of VCF

(1)

The VCF consists of—

(a)

money paid into the VCF by the Crown under section 28 or otherwise:

(b)

VCF investments:

(c)

money accruing from the investment of the VCF:

(d)

any other money that may be lawfully payable into the VCF.

(2)

The VCF is not an entity separate from the Crown.

(3)

However, subsection (2) does not limit section 54(2) or 55(1).

Compare: 2001 No 84 s 38

26 Ownership of VCF

The VCF is the property of the Crown.

Compare: 2001 No 84 s 40

27 Payments out of VCF

(1)

Money may be paid out of the VCF—

(a)

to pay any fee that is payable to an investment manager or a custodian in respect of the VCF:

(b)

to meet any other obligation that is directly related to the operation of the VCF:

(c)

to pay the taxation liabilities arising in respect of the VCF:

(d)

to the Crown in accordance with an agreement between the Guardians and the Minister:

(e)

to comply with a direction under section 46.

(2)

No payment may be made out of the VCF except in accordance with subsection (1) and unless it has been authorised by the Guardians.

(3)

See section 41A of the New Zealand Superannuation and Retirement Income Act 2001, which allows the Guardians to apportion obligations between the Fund and the VCF.

Compare: 2001 No 84 s 41

Contributions to VCF

28 Contributions to VCF

The Minister may pay any money into the VCF.

Acquisition of financial products, borrowing, guarantees, indemnities, and derivatives

29 Crown Entities Act 2004 provisions about acquisition of financial products, borrowing, guarantees, indemnities, and derivatives do not apply

(1)

Sections 100 and 160 to 164 of the Crown Entities Act 2004 do not apply to the Guardians in relation to the VCF.

(2)

There are no restrictions on the Guardians’ power to invest the VCF, other than as provided by sections 31 to 39, 46, and 47 and Schedule 1.

(3)

This section is subject to section 30 (borrowing).

Compare: 2001 No 84 s 49

30 Borrowing

(1)

The Guardians may not, except with the approval of the Minister of Finance,—

(a)

borrow money (in respect of the VCF); nor

(b)

mortgage or charge any of the real or personal property of the VCF, whether present or future, as security; nor

(c)

hold any financial instrument that places or may place a liability or a contingent liability on the VCF, or the Crown.

(2)

The Minister’s approval may be given for any class of transactions in subsection (1)(a) to (c).

Compare: 2001 No 84 s 50

Investment of VCF

31 Responsibility for investing

The Guardians are responsible for investing the VCF.

Compare: 2001 No 84 s 58(1)

32 Guardians must use best-practice investment management

(1)

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

(2)

However, this section is subject to the directions that the Guardians must give effect to under sections 34 to 38.

Compare: 2001 No 84 s 58(2)

33 Guardians must manage and administer the VCF in certain manner

(1)

The Guardians must manage and administer the VCF in a manner consistent with—

(a)

the policy statement in effect under section 34; and

(b)

avoiding prejudice to New Zealand’s reputation as a responsible member of the world community.

(2)

Section 32 and this section do not prevent the Guardians from investing the VCF or a part of the VCF other than in New Zealand’s venture capital markets—

(a)

pending investments being made in those markets; or

(b)

otherwise on an interim basis.

34 Minister must give policy statement that specifies high-level requirements

(1)

The Minister must give the Guardians a policy statement.

(2)

Sections 35 and 38 set out the directions that a policy statement must or may contain.

(3)

The Minister must take reasonable steps to ensure that a policy statement remains in effect at all times on and after the expiry of the 1-month period that starts on the commencement of this section.

(4)

This section does not limit section 48 (which allows the policy statement to be amended or replaced).

35 Directions in policy statement that must be consulted on

(1)

The Minister may give a direction of the kind described in this section only if the Minister has consulted the Guardians.

Directions Guardians must give effect to

(2)

The policy statement must contain directions that—

(a)

specify what must be considered to be venture capital and a New Zealand venture capital market; and

(b)

require the venture capital made available through the VCF to be made available wholly or substantially to New Zealand entities specified under paragraph (c), whether it is made available directly to those entities or indirectly through funds; and

(c)

specify, for the purposes of paragraph (b),

(i)

what must be considered to be a New Zealand entity; and

(ii)

how to calculate whether venture capital is being made available substantially to those entities; and

(d)

require that, to the extent that the venture capital is made available through funds, the venture capital is wholly or substantially made available through funds with a New Zealand connection specified under paragraph (e); and

(e)

specify, for the purposes of paragraph (d),—

(i)

what must be considered to be a fund with a New Zealand connection; and

(ii)

how to calculate whether venture capital is being made available substantially through those funds; and

(f)

set the minimum proportion of investment that must be made by other investors in 1 or more circumstances specified in the direction.

(3)

The Guardians must give effect to the directions under subsection (2) when managing and administering the VCF.

Directions Guardians must have regard to

(4)

The policy statement may contain directions about 1 or more of the following:

(a)

the Government’s expectations as to the time period during which all or a part of the venture capital to be made available through the VCF will be made available to entities:

(b)

the Government’s expectations as to the time period during which all or a part of the capital invested through the VCF will become available to be returned to the Crown:

(c)

the Government’s commitment to a low-emissions economy:

(d)

the Government’s wider economic policy as specified in the direction.

(5)

The Guardians must have regard to the directions under subsection (4) when managing and administering the VCF.

36 Minister may approve departure from direction in particular circumstances

(1)

The Guardians do not have to give effect to a direction under section 35(2)(b), (d), or (f) in particular circumstances, or in relation to a part of the VCF, if the Minister gives approval.

(2)

The Minister’s approval may be given for any class of circumstances.

37 Other provisions about directions under section 35

(1)

A direction under section 35 must not require the Guardians to use a particular evaluation methodology or performance standard for assessing whether the direction has been given effect to.

(2)

In the case of venture capital being made available to entities indirectly through funds, nothing in or under section 35 requires the Guardians to verify that any particular entity is, in fact, a New Zealand entity.

38 Directions in policy statement that require Guardians’ agreement

(1)

The Minister may give a direction of the kind described in this section only if the Guardians have agreed to the direction.

(2)

The policy statement may contain directions that—

(a)

impose requirements concerning the use of an overarching model or approach for investing the VCF or a part of the VCF; or

(b)

relate to other high-level matters to ensure that the VCF achieves the purpose set out in section 24.

(3)

The Guardians must, when managing and administering the VCF,—

(a)

give effect to a direction under subsection (2)(a):

(b)

give effect to, or have regard to, a direction under subsection (2)(b).

(4)

Subsection (1) does not limit the Minister’s power to give a direction of the kind described in section 35 (after consulting the Guardians).

39 Limits on policy statement

Despite anything to the contrary in the Crown Entities Act 2004, 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.

40 VCF investment vehicles

(1)

All or any of the investments of the VCF may be held in an entity that is formed or controlled by the Guardians for the purpose of holding, facilitating, or managing the investments of the VCF (a VCF investment vehicle).

(2)

A VCF investment vehicle is not a Crown entity subsidiary for the purposes of section 7(1)(c) of the Crown Entities Act 2004.

(3)

Interests in VCF investment vehicles are VCF investments and part of the VCF.

(4)

To avoid doubt, the Official Information Act 1982 and the Ombudsmen Act 1975 do not apply to VCF investment vehicles, but the Official Information Act 1982 applies to the Guardians in respect of information held by the Guardians about VCF investment vehicles.

(5)

Subsection (1) applies despite anything to the contrary in the Crown Entities Act 2004, this Act, or any other enactment.

(6)

For the purposes of this Part, an entity is controlled by the Guardians if—

(a)

the entity is a subsidiary of the Guardians; or

(b)

the Guardians control the entity within the meaning of any relevant financial reporting standard (within the meaning of section 5 of the Financial Reporting Act 2013); or

(c)

the Guardians can control directly or indirectly the composition of the board of the entity within the meaning of sections 7 and 8 of the Companies Act 1993 (which, for the purposes of this paragraph, are to be read with all necessary modifications).

Compare: 2001 No 84 s 59A

41 VCF investment vehicles not required to prepare statements or annual reports

(1)

A VCF investment vehicle is not required to do either of the following:

(a)

prepare financial statements or group financial statements that are separate from those prepared for the VCF under section 54:

(b)

have financial statements or group financial statements audited.

(2)

If a VCF investment vehicle is a company, the board of the company is not required to prepare an annual report.

(3)

Subsections (1) and (2) apply despite anything to the contrary in the Companies Act 1993, the Limited Partnerships Act 2008, or the Public Audit Act 2001.

(4)

This section does not limit sections 54 to 56.

(5)

In this section, annual report and board have the meanings given in section 2(1) of the Companies Act 1993.

Compare: 2001 No 84 s 59B

42 Guardians must establish investment policies, standards, and procedures

(1)

The Guardians must establish, and adhere to, investment policies, standards, and procedures for the VCF that are consistent with their duty to invest the VCF in accordance with sections 31 to 39.

(2)

The Guardians must review those investment policies, standards, and procedures for the VCF at least annually.

Compare: 2001 No 84 s 60

43 Contents of statements of investment policies, standards, and procedures

A statement of investment policies, standards, and procedures must cover (but is not limited to)—

(a)

the selection criteria that the Guardians use for deciding who will be appointed under section 44 and how the Guardians will monitor the performance of persons appointed under that section; and

(b)

the selection criteria that the Guardians will use for making investment decisions (where the Guardians undertake the investment of any part of the VCF other than through a person appointed under section 44); and

(c)

the determination of standards against which the performance of the VCF as a whole will be assessed; and

(d)

standards for reporting the investment performance of the VCF; and

(e)

ethical investment, including policies, standards, or procedures for avoiding prejudice to New Zealand’s reputation as a responsible member of the world community; and

(f)

the VCF management structure; and

(g)

the governance framework for the implementation and operation of VCF investment vehicles referred to in section 40; and

(h)

the use of derivative financial instruments; and

(i)

the management of credit, liquidity, operational, currency, market, and other financial risks; and

(j)

the method of, and basis for, valuation of investments that are not regularly traded at a public exchange; and

(k)

prohibited or restricted investments or any investment constraints or limits.

Compare: 2001 No 84 s 61

44 Investment management

(1)

The Guardians may appoint, on any terms and conditions that the Guardians think fit, 1 or more persons (including any department) to undertake the investment of any part of the VCF.

(2)

Different persons may be appointed for different parts of the VCF.

(3)

The Guardians must state, in each instrument of appointment, the powers and rights of the person appointed (including, without limitation, the extent of that person’s power to delegate any of those powers and rights).

(4)

This section is subject to sections 34 to 39 and Part 1 of Schedule 1.

(5)

This section does not limit section 17 of the Crown Entities Act 2004.

Compare: 2001 No 84 s 62

45 Custodianship of VCF

(1)

The Guardians may appoint a person or persons (including any department) to act as custodian of the VCF, or any part of the VCF.

(2)

A custodian so appointed must hold the property of the VCF, or that part of the property of the VCF for which they have been appointed, in their name or, if the Guardians authorise it, in the name of 1 or more nominees.

(3)

An appointment may be on any terms and conditions that the Guardians think fit.

(4)

The Guardians must specify, in each instrument of appointment, the powers and rights of the person or persons appointed (including, without limitation, the extent of that person’s powers to delegate any of those powers and rights).

(5)

This section does not limit section 17 of the Crown Entities Act 2004.

Compare: 2001 No 84 s 63

Directions for winding up VCF

46 Minister may give directions for winding up

(1)

The Minister may, after complying with section 47, give directions that the Guardians must give effect to regarding the winding up of the VCF or of a part of the VCF, including directions to do any of the following:

(a)

stop reinvesting money from the VCF or part of the VCF in New Zealand’s venture capital markets in a specified manner:

(b)

comply with a divestment programme (see section 47(1)(e)):

(c)

pay 1 or more amounts from the VCF to the Crown in a specified manner.

(2)

Every amount paid to the Crown under a direction must be paid into a Crown Bank Account.

(3)

The Minister may also give directions that the Guardians must give effect to regarding the realisation of particular investments of the VCF in a specified manner if—

(a)

the Minister—

(i)

has been unable to agree with the Guardians on a divestment programme after having made reasonable efforts to do so; or

(ii)

considers that the Guardians have failed to comply with a divestment programme in a material respect; and

(b)

the Minister has had regard to the desirability of divesting the investments of the VCF over a time period that is most likely to maximise returns.

47 Process for directions for winding up

(1)

The Minister may give a direction under section 46 only if—

(a)

a person or persons (including any department) appointed by the Minister has prepared a report on—

(i)

the amount of venture capital available to New Zealand entities if the VCF or part of the VCF were to be wound up; and

(ii)

whether, if the VCF or part of the VCF were to be wound up, New Zealand’s venture capital markets would be likely to function effectively; and

(b)

the Minister has taken the report into account; and

(c)

the Minister has consulted the Guardians; and

(d)

the Minister is satisfied that, if the VCF or part of the VCF were to be wound up, New Zealand’s venture capital markets would be likely to function effectively; and

(e)

the Minister has made reasonable efforts to agree with the Guardians on a programme for the realisation of the investments of the VCF or part of the VCF (a divestment programme).

(2)

The Minister may, after subsection (1)(a) to (d) has been satisfied, give directions to the Guardians relating to the Government’s expectations as to the time frame for the divestment programme.

(3)

When making efforts to agree on a divestment programme,—

(a)

the Minister must have regard to the desirability of divesting the investments of the VCF over a time period that is most likely to maximise returns; and

(b)

the Guardians must have regard to—

(i)

any directions under subsection (2); and

(ii)

the desirability of divesting the investments of the VCF over a time period that is most likely to maximise returns.

(4)

In this section, New Zealand’s venture capital markets would be likely to function effectively if adequate venture capital were available to New Zealand entities to enable them to grow into successful and sustainable businesses.

Other provisions about policy statement and directions

48 Amendment or replacement of policy statement or directions

The policy statement under section 34 or a direction under section 46 may be amended or replaced in the same way as it may be given.

49 Amendment or replacement of policy statement or directions does not affect existing matters

The amendment or replacement of the policy statement under section 34 or a direction under section 46 does not affect any existing investment of the VCF or any existing deed, agreement, right, or obligation that is entered into, obtained, or incurred by the Guardians as manager and administrator of the VCF.

50 Publication of policy statement or directions

As soon as practicable after giving a policy statement under section 34 or a direction under section 46, the Minister must—

(a)

publish it in the Gazette; and

(b)

publish it on the Internet; and

(c)

present a copy of it to the House of Representatives.

51 Reporting relating to directions

(1)

The Guardians must notify the Minister of how the entity proposes to have regard or give effect to any direction given under sections 34 to 38 or section 46.

(2)

The Guardians’ annual report must, in relation to the year to which the report relates, include a statement of how the entity is having, or has had, regard to, or is giving, or has given, effect to, any ministerial directions given under sections 34 to 38 or section 46.

Compare: 2001 No 84 s 64(6), (7)

52 Limit on directions relating to VCF

Despite anything to the contrary in the Crown Entities Act 2004, the Minister must not give a direction to the Guardians in respect of the VCF except in accordance with this Part.

Compare: 2001 No 84 s 64(2)(b)

53 Certain Crown Entities Act 2004 provisions about directions do not apply

Sections 115 and 115A of the Crown Entities Act 2004 do not apply to a direction under sections 34 to 38 or section 46.

Accountability

54 Financial statements of VCF

(1)

The Guardians must ensure that financial statements for the VCF are prepared for each financial year.

(2)

The annual financial statements must be prepared in accordance with generally accepted accounting practice (as defined in section 8 of the Financial Reporting Act 2013).

Compare: 2001 No 84 s 66

55 Auditor-General is auditor of VCF

(1)

The VCF is to be treated as if it were a public entity as defined in section 4 of the Public Audit Act 2001 and, in accordance with that Act, the Auditor-General is its auditor.

(2)

The Guardians must, not later than 90 days after the end of the financial year, forward the annual financial statements of the VCF to the Auditor-General.

(3)

The Auditor-General must issue an audit opinion within 30 days of receipt of the annual financial statements and must return the annual financial statements, with the audit report attached, to the Guardians.

Compare: 2001 No 84 s 67

56 Annual report

(1)

The annual report of the Guardians prepared each financial year under Part 4 of the Crown Entities Act 2004 must include (in addition to any other requirements, such as the entity’s own financial statements)—

(a)

the financial statements of the VCF for that financial year prepared under section 54; and

(b)

a statement of responsibility for the financial statements of the VCF, signed by the chairperson of the board and the chief executive of the Guardians (if any), and comprising the same statements that are required by section 155 of the Crown Entities Act 2004 as if the VCF were a Crown entity; and

(c)

the audit report on the financial statements; and

(d)

an analysis and explanation of the performance of the VCF over that financial year; and

(e)

a statement of the investment policies, standards, and procedures for the VCF established by the Guardians under section 42; and

(f)

a statement signed by the chairperson of the board and the chief executive of the Guardians (if any) certifying whether or not the investment policies, standards, and procedures for the VCF have been complied with throughout that financial year; and

(g)

a schedule of the investment managers and custodians used by the Guardians in relation to the VCF during that financial year and the classes of investments for which each was responsible.

(2)

If the Guardians’ statement of performance expectations relating to the financial year sets out the Guardians’ expectations about the performance of the VCF, the information under subsection (1)(d) must include a comparison of the performance of the VCF with those expectations.

Compare: 2001 No 84 s 68

57 Reporting by Guardians on VCF

(1)

The Guardians must report to the Minister on the VCF at those intervals that the Minister may require.

(2)

The Guardians’ report must include any information that the Minister may require.

Compare: 2001 No 84 s 69

Schedule 1 Transitional, savings, and related provisions

s 21

Part 1 Provisions relating to this Act as enacted

1 Guardians and New Zealand Venture Investment Fund Limited must make reasonable efforts to ensure contract or other arrangement is entered into

(1)

The Guardians and NZVIF must make reasonable efforts to ensure that a contract or other arrangement referred to in clause 2 is entered into before—

(a)

the expiry of the 2-month period that starts on the date on which the first policy statement is given under section 34; or

(b)

the expiry of a longer period specified by the Minister under subclause (2).

(2)

The Minister may extend the period under subclause (1)(a) by up to 2 months (however, the power under this subclause may only be exercised once).

(3)

Before the contract or other arrangement is entered into, the Guardians must—

(a)

give a copy of the draft contract or arrangement to the Minister; and

(b)

give the Minister at least 15 working days to comment on the draft contract or arrangement; and

(c)

have regard to any comments given by the Minister within that period.

(4)

This clause applies despite sections 31 to 38.

(5)

In this schedule, NZVIF means New Zealand Venture Investment Fund Limited.

2 Requirements and other provisions relating to contract or other arrangement

(1)

The contract or other arrangement is for the Guardians (or a VCF investment vehicle) to appoint NZVIF to undertake investment of the whole of the money of the VCF using a fund of funds model on reasonable terms and conditions that will enable the Guardians to comply with its duties under Part 2.

(2)

Nothing in this clause (or the contract or arrangement) prevents or restricts—

(a)

money of the VCF from being held or applied by or on behalf of the Guardians for the purposes of section 27; or

(b)

the Guardians (or a VCF investment vehicle) from exercising any right to cancel the contract or other arrangement.

3 Minister may specify contract or other arrangement if parties do not agree within required time frame

(1)

This clause applies if a contract or other arrangement has not been entered into in accordance with clause 1.

(2)

The Minister may, by written notice to the Guardians and to NZVIF, specify a contract or other arrangement referred to in clause 2 that is binding on—

(a)

the Guardians or a VCF investment vehicle (or both); and

(b)

NZVIF.

(3)

The contract or other arrangement—

(a)

must be treated as being on the terms and conditions specified in the notice; and

(b)

is enforceable as if it were a contract or arrangement that was freely and voluntarily entered into by the parties.

(4)

The power under subclause (2)

(a)

may be exercised only once; and

(b)

may not be exercised if the Minister, by written notice to the Guardians, states that the Minister will not exercise the power.

(5)

The contract or other arrangement may be amended, replaced, or cancelled—

(a)

in accordance with the terms and conditions of the contract or other arrangement; or

(b)

by agreement between the parties; or

(c)

in accordance with section 36 or 37(1)(b) or (c) of the Contract and Commercial Law Act 2017.

4 Minister must consult and publish notice

(1)

The Minister may exercise a power under clause 3 only after consulting the Guardians and NZVIF.

(2)

As soon as practicable after giving a notice under clause 3, the Minister must—

(a)

publish it in the Gazette; and

(b)

publish it on the Internet; and

(c)

present a copy of it to the House of Representatives.

(3)

However, the Minister may withhold from disclosure under subclause (2) any part of the notice that the Minister considers is commercially sensitive and, in that case, must substitute a note of explanation for the parts withheld.

5 Other matters relating to contract or other arrangement

(1)

This clause applies in relation to a contract or other arrangement entered into under clause 1 or specified under clause 3.

(2)

NZVIF must be treated as having been appointed under section 44.

(3)

Section 44(3) applies with all necessary modifications to the contract or other arrangement.

Schedule 2 Other amendments

s 17

Crown Entities Act 2004 (2004 No 115)

In Schedule 2, item relating to New Zealand Venture Investment Fund Limited, in the column relating to section 165 of the Crown Entities Act 2004, delete the tick.

Income Tax Act 2007 (2007 No 97)

After section CW 38(5)(d), insert:

(db)

a VCF investment vehicle as referred to in section 40 of the Venture Capital Fund Act 2019:

In section CW 38(5)(e), after “Fund”, insert “and VCF”.

In section CW 38, list of defined terms, insert “VCF”.

After section CX 55(1)(bc), insert:

(bd)

the Crown as owner of the VCF:

(be)

a VCF investment vehicle, as referred to in section 40 of the Venture Capital Fund Act 2019, that is treated as being wholly owned by the Crown under section HR 4B:

In section CX 55, list of defined terms, insert “VCF”.

In the heading to section HR 4B, after Fund, insert and Venture Capital Fund.

In section HR 4B(1), after “(the Fund)”, insert “and the VCF”.

Replace section HR 4B(2) and (3) with:

Activities of the Crown relating to Fund or VCF

(2)

Amounts of income derived and expenditure incurred by the Crown in activities relating to the Fund or the VCF are determined as if the amounts were being derived or incurred by a company (the Fund/VCF company), other than a public authority, that was a special corporate entity wholly owned by,—

(a)

in the case of the Fund, the Minister of the Crown who was for the time being responsible for the administration of the New Zealand Superannuation and Retirement Income Act 2001, Parts 2 and 3:

(b)

in the case of the VCF, the Minister of the Crown who was for the time being responsible for the administration of the Venture Capital Fund Act 2019, Part 2.

Fund investment vehicles and VCF investment vehicles

(3)

The consolidation rules, continuity provisions, and other rules relating to groups of companies apply to the Crown as owner of the Fund and of the VCF, to a Fund investment vehicle as referred to in section 59A of the New Zealand Superannuation and Retirement Income Act 2001, to a VCF investment vehicle as referred to in section 40 of the Venture Capital Fund Act 2019, and to a company in which the Guardians of New Zealand Superannuation (the Guardians) hold interests for the Crown, as if—

(a)

the Crown were the Fund/VCF company; and

(b)

interests in the Fund investment vehicle, VCF investment vehicle, or company held by the Guardians were owned by the Crown as the Fund/VCF company.

In section HR 4B, list of defined terms, insert “VCF”.

In section YA 1, insert in its appropriate alphabetical order:

VCF means the Venture Capital Fund established under section 23 of the Venture Capital Fund Act 2019

In Schedule 1, Part A, after clause 11, insert:

12 Taxable income: Venture Capital Fund

The basic rate of income tax on each dollar of taxable income derived by the Crown through the VCF is the rate applying to companies set out in clause 2.

In Schedule 29, Part A, after item 4, insert:

4BA

The Crown as owner of the VCF.

In Schedule 29, Part A, after item 4B, insert:

4BB

A VCF investment vehicle, as referred to in section 40 of the Venture Capital Fund Act 2019, that is treated as being wholly owned by the Crown under section HR 4B.