The Herald reports:
A scheme funded by New Zealand taxpayers netted billionaire Peter Thiel tens of millions of dollars while his publicly funded investment partner barely broke even.
The partnering of Thiel’s Valar Ventures and the Government-owned New Zealand Venture Investment Fund (NZVIF) was launched by minister Steven Joyce in March 2012, nine months after Thiel took his oath of citizenship at the New Zealand consulate in Santa Monica.
Joyce said at the time the venture was “part of the Government’s comprehensive business growth agenda”, but a Herald investigation has discovered the arrangement was quietly ended in October when Thiel activated a generous buyback option allowing him and his private partners to claim all profits from the venture by cheaply buying out his public co-investor.
A Wall St analyst told the Weekend Herald the clause left the Government facing a “horrendous risk-return proposition” that had no place in agreements between commercial parties.
“If a professional investor signed this deal, they would be the butt of their colleagues’ jokes all the way out the door,” the analyst said.
“This is a clear ‘heads I double win, tails I lose’, ‘heads the taxpayer loses, and tails the taxpayer loses’ proposition, and a very savvy deal for Thiel.”
This assessment is echoed by Auckland-based Castlepoint Funds partner Stephen Bennie, who said he would leap at the chance to sign up to a deal if a partner offered such a clause.
“You’d take it. And obviously a fairly smart guy did. Thiel didn’t need to be asked twice,” Bennie said.
The play appears to have left Thiel with an investment worth least $30 million after contributing just under $7m. The NZVIF, by contrast, confirmed in a statement to the Weekend Herald that it received just $10.2m following the October move after having earlier contributed $9m.
So a crappy deal for taxpayers which shows why the Government shouldn’t be doing something which is better suited to the private sector – venture capital. As the article says no professional investor would have signed such a deal.
Finance Minister Joyce, who was Minister for Economic Development at the time the Valar partnership was signed and operated, was asked if the buyout option represented a good deal for taxpayers.
“On the face of it, no,” the minister said.
Joyce said he had inherited the settings for the NZVIF, including the buyout clause, and suggested Lees-Galloway direct his criticism elsewhere.
“If he’s got a problem with it — and I don’t argue with him that he should — then he needs to go back and talk to the Labour ministers at the time  who set this up,” Joyce said.
The point of changing governments is to change policies and settings also. A policy where taxpayers take all the risk, but can get left out of the reward is one that should never have been left in place.
The existence of the buyback option, described by a Wall St source as having exposed the Government to a “horrendous risk-return proposition”, meant Thiel was able to cheaply acquire the NZVIF’s share if the investment performed well, but share losses equally if it failed.
The NZVIF said the buyback option had been a standard part of its investment partnership since 2002 and was intended to encourage private-sector involvement.
“Rather than making an investment return, NZVIF’s primary role has been to develop market activity, participation, awareness and capability,” a spokesman said.
If an investor is concerned with a return on investment then they will take greater care with their investment.