* Australian investors back in New Zealand on cheaper kiwi dollar
* Australian investors also in search of higher returns
* Overall foreign M&A inflows to exceed last year's NZ$9.8 bln
By Swati Pandey and Rebecca Howard
SYDNEY/WELLINGTON, April 14 (Reuters) - Heeding the call of a cheaper kiwi, Australian private equity funds are rushing back to New Zealand, joining a larger wave of foreign investors expected to boost the country's inbound M&A deals to an all-time high this year.
The Australian dollar has risen more than 10 percent against its New Zealand counterpart AUDNZD=D3 from a historic low in April last year. The weaker kiwi dollar helped boost investment by Australian PE funds in New Zealand businesses to A$85 million ($65 million) in the year ended June from a mere A$3 million a year earlier, data from the Australian Private Equity & Venture Capital Association shows.
Industry experts expect total foreign M&A inflows to top NZ$9.8 billion in 2015. In February, New Zealand software company Diligent Corp DIL.NZ agreed to a NZ$941 million ($651 million) buyout offer from a U.S. investment firm. Later this year, shareholders of resins and coating firm Nuplex Industries Ltd NPX.NZ will vote on a NZ$1.05 billion takeover bid from a Belgian chemicals maker. from the weaker kiwi dollar, Australian PE funds are also drawn to cheap valuations for assets that investors say can offer returns of at least 6 percent. That compares to benchmark interest rates of around 2 percent in Australia and negative stock market returns in Sydney.
"We will be delighted to do more stuff in New Zealand," said Justin Ryan, managing partner at Sydney-based Quadrant Private Equity. "It's not a large market (and) that presents some challenges, but there are certain areas in the economy that they're very good at. Branded consumer products is one."
Quadrant Private Equity is scouring for "good quality assets" in New Zealand, Ryan said, after what he called successful investments in retailer Kathmandu Holdings KMD.NZ and retirement village Summerset Group Holdings SUM.NZ .
New Zealand's 50-share benchmark index .NZ50 has risen 7 percent year-to-date - among the best performing indices in the developed world. By contrast, Australia's benchmark index .AXJO is down 4.55 percent.
Two of Australia's biggest private equity firms Pacific Equity Partners and Archer Capital late last year made acquisitions in New Zealand's education, pharmaceutical and agribusiness sectors. Interest is also strong in the utility and healthcare space.
COMMON SYSTEMS
Australian investors also find comfort in similar legal and regulatory systems in New Zealand.
"Population growth in New Zealand is strong, the yield on a lot of investments is attractive, and we have confidence in the regulatory and political systems," said Andrew Chambers, senior research analyst at Martin Currie Australia who helps manage A$5 billion ($3.83 billion) in assets.
The interest from Australian PE firms and fund managers, historically strong investors in assets across the Tasman sea, comes at a time when investment from home-grown kiwi funds are shrinking.
"A lot of New Zealand private equity players are not raising money or they have got succession issues or they are winding up," said Adrian Loader, founding partner at Sydney-based private equity firm Allegro Funds.
"So what you probably see is that more Australian people are doing Australia New Zealand deals."
Besides, Australian funds have more firepower to execute larger deals compared to their smaller NZ counterparts, said Tim Tubman, partner at New Zealand law firm Chapman Tripp.
"The Aussie funds are also bigger than ours, so can look at deals of a transaction size that the NZ funds find more challenging." ($1 = 1.3053 Australian dollars) ($1 = 1.4447 New Zealand dollars) (Editing by Ryan Woo)