Isn't this kind of the point? The NZ governments goal was to increase private investment, not make a return. They succeeded -- Thiel put $6.8m to work in NZ that he may not have otherwise.

Many countries do this. For example in the UK the British Business Bank will become an LP in a VC fund acting as a multiplier on capital raised.

You may not agree with the government's decision, but you can hardly blame Thiel for making use of it.