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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. Our savings pool is growing,

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Speaker 1: but our stock market is shrinking. Why the head of

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Speaker 1: one of the country's biggest wealth firms is worried we're

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Speaker 1: becoming more like soup than Singapore.

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Speaker 2: Well, at the moment we don't have access to the

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Speaker 2: size of opportunity. We need to deploy it into New Zealand,

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Speaker 2: so we are deploying it overseas because it is also

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Speaker 2: achieving diversification for our investors and accessing product and returns

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Speaker 2: which you don't get here.

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Speaker 1: So is that suggesting that the government then could look

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Speaker 1: or should look to selling off some of their stakes

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Speaker 1: in the gent tailors in the likes of Air New

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Speaker 1: Zealand or councils in their port oartnership.

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Speaker 2: Those organizations will do what's appropriate for their balance sheets

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Speaker 2: if they do that. That is an example of how

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Speaker 2: you would get more liquidity into a mark.

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Speaker 3: You might create some enemies from this chat you prepared

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Speaker 3: for that. NJ. Good to see you. Thanks much for

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Speaker 3: having us.

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Speaker 4: In welcome back, medisine, good see and it.

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Speaker 3: Is always good to be back.

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Speaker 1: Why do you think we should have this conversation now?

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Speaker 1: Why do you feel it's important for you to talk

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Speaker 1: about it.

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Speaker 2: There is a lot of stuff which is going on,

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Speaker 2: and there's a lot of positive actions which are being

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Speaker 2: taken by the industry and market participants as a whole.

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Speaker 2: And I think there are at times when you step

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Speaker 2: back and acknowledge some of those things which are taking

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Speaker 2: place and actually commend some of the people who are

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Speaker 2: really leaning into trying to solve the problem.

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Speaker 3: What is the problem? Can you size it up for us?

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Speaker 3: Why is our capital market shrinking?

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Speaker 4: Well? Capital markets.

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Speaker 2: People often think of the listed markets in New Zealand

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Speaker 2: that's the NZIEX, but there's also private markets. And with

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Speaker 2: the savings rates growing in New Zealand, which is a

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Speaker 2: positive thing, we need to be able to deploy the

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Speaker 2: money both here domestically and overseas. We've got great returns overseas,

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Speaker 2: we're getting okay returns here in New Zealand. As our

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Speaker 2: savings industry grows, we need our capital markets to grow

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Speaker 2: as well. One of the problems we have at the

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Speaker 2: moment is we need to be an attractive place to list.

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Speaker 2: We need to have a liquid market as the second piece,

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Speaker 2: and we need to have a market which instills confidence

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Speaker 2: for people to put long term capital to work in

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Speaker 2: the private setting because they don't have the liquidity. So

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Speaker 2: those are the three core buckets are the problem we've

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Speaker 2: got focusing on the savings pool. First, how much has

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Speaker 2: that grown?

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Speaker 1: What are you seeing at first cape and how much

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Speaker 1: is that continuing to grow?

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Speaker 2: And why we're seeing savings growth coming from two main

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Speaker 2: areas at the moment. One is the key we saver

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Speaker 2: the mandated and flows that system's working. The other area

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Speaker 2: we're seeing the market growing is from market returns. Those

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Speaker 2: market returns again coming from New Zealand and off shore.

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Speaker 2: The off market in particular, the US has been performing

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Speaker 2: incredibly well this year, in the region of twenty percent

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Speaker 2: growth here today, which is more than we're seeing here domestically.

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Speaker 3: So first, Kate looks after how many billions of dollars.

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Speaker 2: We're about fifty one billion at the moment, So directly

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Speaker 2: and indirectly looking after the savings of about eight hundred

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Speaker 2: thousand New Zealanders, where.

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Speaker 3: Are you allocating that?

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Speaker 1: Then?

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Speaker 3: What's the percentage split?

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Speaker 1: Between those offshore opportunities where returns are right now larger.

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Speaker 4: It varies for each.

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Speaker 2: Of the individual pools of savings you have, depends on

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Speaker 2: how much you'll allocate overseas. But given the size of

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Speaker 2: the New Zealand market as an industry, we need to

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Speaker 2: allocate more of our savings pool overseas than we do

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Speaker 2: here domestically.

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Speaker 1: Is that like fifty one to forty nine or is

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Speaker 1: it more like seventy thirty eighty twenty.

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Speaker 2: It's over fifty percent of the industry would be overseas.

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Speaker 1: But that is your obligation, right You have to chase

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Speaker 1: better returns for investors, and you just feel those opportunities

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Speaker 1: and not here.

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Speaker 2: You have to chase returns, but you have to chase

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Speaker 2: them safely, and the safety comes with diversification.

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Speaker 4: The New Zealand market is quite a concentrated market.

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Speaker 2: The companies on the exchange are quite concentrated, and you

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Speaker 2: get some of that diversification of exposure to different industries

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Speaker 2: by being in other geographies.

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Speaker 1: So as that pool that you look after grows and

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Speaker 1: you have to chase bigger returns for those clients. Does

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Speaker 1: the threshold for a size company or size investment you

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Speaker 1: put that money into get bigger as well.

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Speaker 2: That goes to the problem we were talking about around liquidity.

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Speaker 2: That's the amount of stock which is available for buying

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Speaker 2: and selling in a market on any given day. As

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Speaker 2: the pools of money you put to work out bigger,

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Speaker 2: if you decide not to be in a stock, you

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Speaker 2: need to move more and more of your money out

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Speaker 2: of it. So you need to have depth of liquidity

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Speaker 2: in stocks as as you get bigger. Given the size

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Speaker 2: of the saving pool in New Zealand, the number of

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Speaker 2: companies which are meeting that threshold is actually becoming smaller

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Speaker 2: because they're not keeping up with the rate of growth

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Speaker 2: in the savings industry. That's not a bad thing, that's

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Speaker 2: just a natural evolution for the market, but there's probably

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Speaker 2: within the industry across This is not just a first

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Speaker 2: Cape statement, but probably across the industry. The top fifteen

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Speaker 2: companies in New Zealand probably meet the long term liquidity

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Speaker 2: requirements for long term deployment for a growing savings industry.

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Speaker 2: Those stocks will also need to keep up with the

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Speaker 2: liquidity requirements of the industry, so it'll be an interesting

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Speaker 2: challenge for the market to keep up with the growth

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Speaker 2: of the savings industry.

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Speaker 1: So there's only fifteen one to five companies in this

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Speaker 1: country on our stock market that actually meet the threshold

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Speaker 1: of investible for our savings pill right now.

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Speaker 2: There's a few more, but that tends to be the number,

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Speaker 2: give or take a few which companies tend to put

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Speaker 2: their follow allocations into.

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Speaker 1: And if you consider takeovers that we've seen over the

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Speaker 1: past few years, I mean, the number of large cap

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Speaker 1: companies in this country is are only shrinking other than takeovers.

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Speaker 3: What do you think the problem is?

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Speaker 1: Is it that these companies can't grow therefore they're not

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Speaker 1: becoming more attractive or are they just not releasing their

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Speaker 1: liquidity onto the.

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Speaker 3: Market like they should be.

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Speaker 2: In relation to we're talking about public equities at the moment.

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Speaker 2: In relation to the two challenges around the public equity markets,

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Speaker 2: one is we need to be an attractive place to list,

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Speaker 2: and so we need to make sure that we're not

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Speaker 2: a place which is unattractive to list and ensuring that

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Speaker 2: the balance with regulation enlisting rules is right. Mark Peterson's

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Speaker 2: doing some amazing work there with Minister Bailey around getting

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Speaker 2: the settings right and with the regulators to make sure

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Speaker 2: that we aren't disadvantage. So that's the first step getting

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Speaker 2: more companies wanting to raise or access capital in the markets.

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Speaker 2: It's the first step. The second part is the one

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Speaker 2: of straight out liquidity. There are large holdings within New

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Speaker 2: Zealand companies which aren't tuned that often and people continually.

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Speaker 2: For example, they're held by councils or government and as

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Speaker 2: they go through their thinking around how they want to

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Speaker 2: have their balance sheets, you may see further liquidity coming

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Speaker 2: from those pockets.

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Speaker 4: But that's not within our gift.

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Speaker 1: So is that suggesting that the government then could look

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Speaker 1: or should look to selling off some of their stakes

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Speaker 1: in the gentailors in the likes of Air New Zealand

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Speaker 1: or councils and their port ownership.

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Speaker 2: Those organizations will do what's appropriate for their balance sheets

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Speaker 2: if they do that. That is an example of how

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Speaker 2: you would get more liquidity into a market.

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Speaker 1: And companies like yours would be interested in investing in

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Speaker 1: those of those opportunities.

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Speaker 2: Came about again depending on the underlying performance of those

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Speaker 2: companies and how they fit into the portfolios.

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Speaker 1: But more liquidity being released into the system, you think

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Speaker 1: would ultimately be a good thing for our capital market

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Speaker 1: should be.

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Speaker 3: What about small caps business mid to small.

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Speaker 1: Cap companies, the ones other than the fifteen that you're

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Speaker 1: actually investing in.

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Speaker 3: Why are they struggling?

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Speaker 1: Why are they not able to grow to meet that

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Speaker 1: investability threshold?

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Speaker 3: What needs to happen there?

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Speaker 2: There's also a competing force in the mid cap space

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Speaker 2: called private capital.

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Speaker 4: So private capital is also.

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Speaker 2: Now playing a bigger role in New Zealand than it

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Speaker 2: has historically. So you list on the exchange to raise

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Speaker 2: or access capital, some of that need is no longer

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Speaker 2: there as private capital is able to fulfill that need,

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Speaker 2: so you're seeing a lot more of that occurring in

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Speaker 2: that smaller mid cap space.

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Speaker 3: Is that easier to access for companies as well?

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Speaker 1: Is that now becoming a popular route because it is

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Speaker 1: better and easier rather than listed.

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Speaker 2: There are pros and cons of listing versus accessing private capital.

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Speaker 2: If you list, one of the big advantages as you

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Speaker 2: do have liquidity for the shareholders. They can choose not

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Speaker 2: to be invested with you, and they can and they

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Speaker 2: can sell their shares. That is an enormous bonus. In

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Speaker 2: the private capital space, you have less liquidity, You are

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Speaker 2: locked up with that partner, and if you don't like

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Speaker 2: that partner, or it doesn't work out, you're kind of

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Speaker 2: stuck with them. So there's definitely pros and cons. One

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Speaker 2: of the perceived pros of private capital is that the

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Speaker 2: cost of accessing it is lower than what is what

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Speaker 2: it is to be listing on in exchange, which goes

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Speaker 2: to the point about why we need to make sure

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Speaker 2: it's an attractive place to list and not having the

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Speaker 2: barriers to listing being too high.

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Speaker 1: Well, let's talk about how we do that. What functions

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Speaker 1: need to be changed. Do they need to perhaps be

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Speaker 1: concessions for smaller mid cap companies to list on the

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Speaker 1: exchange that aren't the large ones, Perhaps they shouldn't fall

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Speaker 1: under climate disclosure, or perhaps they shouldn't need all continuous disclosure.

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Speaker 3: I mean, those the things that we should be considering.

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Speaker 4: And those are exactly the points which Mark is working

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Speaker 4: on with industry support to try and courage the regulatory

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Speaker 4: settings to be appropriate for the size of the companies

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Speaker 4: which are listening, and he's getting some great traction, and

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Speaker 4: so I do feel very positive about the direction of

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Speaker 4: travel with that.

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Speaker 1: Do you think that something like that would need to

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Speaker 1: happen or was that kind of like, do we need

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Speaker 1: to be function changes for this to make a difference.

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Speaker 2: I do think we need changes and I do think

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Speaker 2: we are going to see changes because of the way

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Speaker 2: in which both regulators and government are positively engaging with

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Speaker 2: both the market and the enzdics on these matters.

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Speaker 1: Is there a risk that we'd then swim too far

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Speaker 1: the other way and become an unregulated market, which we

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Speaker 1: know I wouldn't be good for investors either.

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Speaker 3: So how do we find that balance?

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Speaker 2: Regulations essential for any market? It provides protection for investors,

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Speaker 2: it provides certainty, provides clarity, creates the field of play.

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Speaker 2: It's like janan rugby and you need a referee and rugby,

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Speaker 2: but if you over referee again, you take some of

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Speaker 2: the performance out of it.

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Speaker 4: So it's about getting the right balance.

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Speaker 2: The part I'm excited about at the moment is that

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Speaker 2: there's an acknowledgment of this by the regulator and an

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Speaker 2: engagement from the regulator on how they can regulate it

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Speaker 2: in a way which works for the players on the field.

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Speaker 2: So I do think you're absolutely right we need regulation.

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Speaker 2: Just making sure we've got the right balance with the

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Speaker 2: referee is key.

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Speaker 1: But if there is too much refereeing, as you call it,

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Speaker 1: if there's too many rules. Then that's the whole point

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Speaker 1: of the capital market effectively being unproductive and underperforming, and

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Speaker 1: then investors chase returns elsewhere typically things that are too

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Speaker 1: good to be true.

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Speaker 4: Is that happening now, I think there's a lesser risk

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Speaker 4: of that.

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Speaker 2: I think what happens is what we're seeing at the

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Speaker 2: moment is if you over referee, people just don't want

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Speaker 2: to play the game, and so they'll go and play

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Speaker 2: in a different market because that's easier for them and

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Speaker 2: it's more fun.

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Speaker 3: But there are still some companies out there.

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Speaker 1: For example, I just got back from Wellington where I

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Speaker 1: filmed it Rasine Paints, incredible New Zealand business.

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Speaker 3: The CFO said to me, oh, we never list. There's

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Speaker 3: just no way.

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Speaker 1: They don't want to be war by private equity, they

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Speaker 1: don't want to IPO.

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Speaker 3: There's many other big companies out.

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Speaker 1: There, as you well know, that have considered listing and

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Speaker 1: then gone, oh maybe not. Like we're told that Trade

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Speaker 1: Mayor has been teasing going back to the market for

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Speaker 1: a couple of years and we're still yet to see

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Speaker 1: the right investors a yet to get any inclue of

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Speaker 1: when that might actually happen. So even if there are

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Speaker 1: these changes at the edges, like, would that even be

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Speaker 1: enough for these incredible companies filter In Hogan another example

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Speaker 1: in this country, So there's actually even consider listing on

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Speaker 1: our market and being subject to public disclosure rules.

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Speaker 2: It's you've got to have a why for wanting to

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Speaker 2: access capital. Brazin may not need to access capital. Fil

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Speaker 2: from Hogan may not need to access capital, so there

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Speaker 2: may be no need for them to contemplate listing. Some

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Speaker 2: people don't like the disclosure requirements because it's New Zealand's

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Speaker 2: a very private country, and so having your financial affairs

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Speaker 2: disclosed publicly if you're a large meaningful holder or a

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Speaker 2: family owned business which then gets listed, that that sometimes

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Speaker 2: carries a disproportionate waiting for some reasons for not listing.

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Speaker 2: So I think every company situation is different. I think

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Speaker 2: when you want to bring it back to what do

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Speaker 2: we need to change if you make it an attractive

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Speaker 2: place to list and take off the table a regulatory

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Speaker 2: burden or a financial cost of listing. If we can

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Speaker 2: address those, you're not going to solve people's desire for privacy.

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Speaker 2: There does need to be a public disclosure if you

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Speaker 2: are a publicly listed company. Those are some of the

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Speaker 2: prices you pay for being having access to that sort

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Speaker 2: of capital. So I don't think it's necessarily about it

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Speaker 2: fitting or being a solution for everybody. But for those

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Speaker 2: for whom it is a solution, we need to make

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Speaker 2: it an attractive one.

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Speaker 1: As part of this, also just changing the story around it.

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Speaker 1: Like you and I are so passionate about this time.

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Speaker 1: We talk about this often, but do we need to

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Speaker 1: just flip the script and make people excited about listing,

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Speaker 1: about celebrating the inside X.

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Speaker 4: It's an interesting topic to get excited about.

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Speaker 1: Yeah, you and I weird, but we're in these group.

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Speaker 2: Look, I do think listing is only one component of

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Speaker 2: the capital markets. I do think the other component of

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Speaker 2: the capital markets, which is likely to have a more

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Speaker 2: immediate benefit, is how we think about investment into long

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Speaker 2: term infrastructure projects. Because capital markets, the companies, and the

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Speaker 2: evolution and growth of those needed to substantially change is

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Speaker 2: a bit like the growing tree. You need to start,

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Speaker 2: and we're starting, and so those changes will evolve over time.

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Speaker 4: If we're looking for more.

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Speaker 2: Immediate hits into our capital market, that's probably going to

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Speaker 2: come from private capital and private capital into infrastructure. The

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Speaker 2: exciting thing is we're now at least talking about it,

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Speaker 2: Like I do think one of the challenges we have

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Speaker 2: we need infrastructure as a country. I do think it's

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Speaker 2: exciting that we're actually now talking about it as opposed

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Speaker 2: to just talking about housing. That conversation's happening, which is great.

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Speaker 2: I do think that's great, and I do think although

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Speaker 2: a lot of people might not find it exciting, they

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Speaker 2: will when the roads get start getting built and the

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Speaker 2: bridges start getting built. But for that to happen, people

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Speaker 2: need long term certainty over what the plan for New

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Speaker 2: Zealand infrastructure. That requires cross party agreement. And the exciting

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Speaker 2: part there is that that is at least now the

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Speaker 2: direction of travel. The government recognizes that you need to

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Speaker 2: have bipartisan cross parties support for a long term infrastructure

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Speaker 2: project because long term infrastructure projects take ten fifteen years

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Speaker 2: and with a three year government cycle, nobody's going to

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Speaker 2: want to come and put capital to work in a

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Speaker 2: government project if it's an unsettain outcome in three years time.

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Speaker 1: This is the interesting thing though, because all of this,

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Speaker 1: whether it's infrastructure or listed companies or private equity, all

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Speaker 1: of it is in competition for capital. Do we actually

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Speaker 1: have enough capital to go to all of these things

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Speaker 1: and to help them all grow and be successful.

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Speaker 2: I do think we have access to enough capital, because

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Speaker 2: we shouldn't be constraining our views on capital being the

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Speaker 2: domestically sourced capital. Yes, we have that, and I want

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Speaker 2: to deploy more capital into the New Zealand market, but

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Speaker 2: we will have access to international capital, which is far

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Speaker 2: great in volume than we can ever produce locally. But

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Speaker 2: that international capital needs a certainty of the environment to

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Speaker 2: invest into, and so that's why I'm excited about the

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Speaker 2: cross party plan for infrastructure.

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Speaker 3: What are you see in terms of interest from offshore capital?

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Speaker 3: Is your phone ringing cold, like.

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Speaker 1: A people calling you saying, MJ, what infrastructure project or

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Speaker 1: private equity business?

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Speaker 3: Can I throw some money in?

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Speaker 2: The phone is ringing very hot from overseas people wanting

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Speaker 2: out capital.

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Speaker 3: Ah.

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Speaker 2: So that is one of the things about being at

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Speaker 2: the size and scale we are now, is the phone

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Speaker 2: rings hot from other private equity firms overseas wanting us

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Speaker 2: to be investing into their funds so they can then

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Speaker 2: deploy it wherever they are in the world, sometimes including

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Speaker 2: New Zealand.

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Speaker 3: What are you telling them if.

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Speaker 4: It's not New Zealand.

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Speaker 3: No, we're keeping our money.

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Speaker 2: Here or well, at the moment, we don't have access

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Speaker 2: to the size of opportunity we need to deploy it

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Speaker 2: into New Zealand. So we are deploying it overseas because

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Speaker 2: it is also achieving diversification for our investors and accessing

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Speaker 2: product and returns which you don't get here.

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Speaker 1: So while you're putting money and those opportunities, you're having

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Speaker 1: this conversation because you actually want to put more of

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Speaker 1: that money here.

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Speaker 3: You just don't see those opportunities right now. Dounterligned, thanks

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Speaker 3: so much your timing and Jack, this was a good chat.

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Speaker 4: Thank you.