Business leaders are proposing that wealthy migrant investors be required to put more of their money into productive local companies with high growth potential.
Among those calling for the change is The Icehouse. It offers mentoring and support for start-up companies. It wants to see at least 10 percent of wealthy migrants' funds put into the start-up sector.
It estimates this could generate an extra $50 million and $100 million a year in investment into local companies.
KPMG is also calling for change. It calculates that New Zealand businesses will require more than $420 billion in capital by 2025. But there will be a shortfall of $115 billion.
It believes that wealthy migrant investment is one way to help make up this shortfall.
"There is evidence that start-up and early stage New Zealand businesses are likely to face the most severe funding constraints, compared to their established peers.
"Investor migrants have the potential to provide a vibrant pool of capital, which can be a part contribution to addressing both of these issues."
New Zealand introduced a wealthy migrant category in 2009. Around 1500 applications have been approved, approved in principle, or are under consideration and another 300 applications are imminent.
The wealthy migrants are bringing around $4 billion with them.
But The Icehouse estimates that around 80 percent is being invested in bank bonds and deposits.
Chief executive Andy Hamilton says "this has very little economic impact and ultimate benefit for New Zealand".
"We are proposing that at least 10 percent of wealthy migrant capital is placed into growth investments, such as angel investment, venture capital or private equity growth funds."
These are riskier investment classes. So the proposal would allow for up to 90 percent of the migrant's capital to be placed in lower risk investments, such as bonds and bank deposits.
Angel investors, venture capital funds and private equity investors are all putting money into New Zealand's start-up sector.
But Mr Hamilton says their research has concluded that only around half of the capital needed by young companies is likely to be available for investment.
"An untapped source of capital are wealthy migrants who want to live in New Zealand. Other countries require these migrants to commit a portion of their investment to growth opportunities."
He points to the example of Australia, which introduced similar rules earlier this year.
Canada also requires a portion of investor migrants' funds to be placed in "at risk" investments.
This is through investment in venture capital and private equity funds, which invest in start-up businesses in those countries.
Canada requires the money to be invested for fifteen years and Australia for four years. This compares with New Zealand where the requirement is for between three and four years.
KPMG says the longer investment timelines make investor migrant capital a particularly "sticky" form of investment. But it says the Canadian 15 year requirement could be too long.
So it is proposing three changes:
- Fast tracking investor visa processing if investments are made into active investments.
- Require active investments after a one year transitional period.
- Compulsory investment making a certain proportion of the investment into at-risk investments, and relax other requirements such as physical presence and English.
Currently "Investor Plus" migrants have to invest $10 million in New Zealand for three years. The "Investor" category migrants must invest $1.5 million for four years, they must have three years business experience and they must be aged under 65.
KPMG's proposal is for the Government to reconsider the policy settings for the 'Investor' and 'Investor Plus' categories to require a percentage of investment funds (for example 20 percent) to be invested in venture and angel capital or similar types of investments.
It says this could be through a designated fund which has the same investment profile (portfolio) as the New Zealand Venture Investment Fund (VIF).
"This would offer some comfort to migrant investors that the portion of their investment capital 'at risk' is being invested in early stage companies that the New Zealand Government is happy to support through VIF (i.e. investor migrants would get the benefit of the due diligence carried out by VIF on these companies)."
It says more "adventurous" investor migrants could be given the option of investing the "at risk" portion of their investment funds in privately managed venture and angel capital funds.
(Source 3 News)
Our comments:
This is strong lobbying from businessleaders and will result in tweaks and changes in the investor category applications in due time. Time frame? My rough guess, in 6 to 12 months time.
