Speaker 1: The information provided in this program is of a general
Speaker 1: nature and is not intended to be personalized financial advice.
Speaker 1: We encourage you to seek appropriate advice from a qualified
Speaker 1: professional to suit your individual circumstances. Our savings pool is growing,
Speaker 1: but our stock market is shrinking. Why the head of
Speaker 1: one of the country's biggest wealth firms is worried we're
Speaker 1: becoming more like soup than Singapore.
Speaker 2: Well, at the moment we don't have access to the
Speaker 2: size of opportunity. We need to deploy it into New Zealand,
Speaker 2: so we are deploying it overseas because it is also
Speaker 2: achieving diversification for our investors and accessing product and returns
Speaker 2: which you don't get here.
Speaker 1: So is that suggesting that the government then could look
Speaker 1: or should look to selling off some of their stakes
Speaker 1: in the gent tailors in the likes of Air New
Speaker 1: Zealand or councils in their port oartnership.
Speaker 2: Those organizations will do what's appropriate for their balance sheets
Speaker 2: if they do that. That is an example of how
Speaker 2: you would get more liquidity into a mark.
Speaker 3: You might create some enemies from this chat you prepared
Speaker 3: for that. NJ. Good to see you. Thanks much for
Speaker 3: having us.
Speaker 4: In welcome back, medisine, good see and it.
Speaker 3: Is always good to be back.
Speaker 1: Why do you think we should have this conversation now?
Speaker 1: Why do you feel it's important for you to talk
Speaker 1: about it.
Speaker 2: There is a lot of stuff which is going on,
Speaker 2: and there's a lot of positive actions which are being
Speaker 2: taken by the industry and market participants as a whole.
Speaker 2: And I think there are at times when you step
Speaker 2: back and acknowledge some of those things which are taking
Speaker 2: place and actually commend some of the people who are
Speaker 2: really leaning into trying to solve the problem.
Speaker 3: What is the problem? Can you size it up for us?
Speaker 3: Why is our capital market shrinking?
Speaker 4: Well? Capital markets.
Speaker 2: People often think of the listed markets in New Zealand
Speaker 2: that's the NZIEX, but there's also private markets. And with
Speaker 2: the savings rates growing in New Zealand, which is a
Speaker 2: positive thing, we need to be able to deploy the
Speaker 2: money both here domestically and overseas. We've got great returns overseas,
Speaker 2: we're getting okay returns here in New Zealand. As our
Speaker 2: savings industry grows, we need our capital markets to grow
Speaker 2: as well. One of the problems we have at the
Speaker 2: moment is we need to be an attractive place to list.
Speaker 2: We need to have a liquid market as the second piece,
Speaker 2: and we need to have a market which instills confidence
Speaker 2: for people to put long term capital to work in
Speaker 2: the private setting because they don't have the liquidity. So
Speaker 2: those are the three core buckets are the problem we've
Speaker 2: got focusing on the savings pool. First, how much has
Speaker 2: that grown?
Speaker 1: What are you seeing at first cape and how much
Speaker 1: is that continuing to grow?
Speaker 2: And why we're seeing savings growth coming from two main
Speaker 2: areas at the moment. One is the key we saver
Speaker 2: the mandated and flows that system's working. The other area
Speaker 2: we're seeing the market growing is from market returns. Those
Speaker 2: market returns again coming from New Zealand and off shore.
Speaker 2: The off market in particular, the US has been performing
Speaker 2: incredibly well this year, in the region of twenty percent
Speaker 2: growth here today, which is more than we're seeing here domestically.
Speaker 3: So first, Kate looks after how many billions of dollars.
Speaker 2: We're about fifty one billion at the moment, So directly
Speaker 2: and indirectly looking after the savings of about eight hundred
Speaker 2: thousand New Zealanders, where.
Speaker 3: Are you allocating that?
Speaker 1: Then?
Speaker 3: What's the percentage split?
Speaker 1: Between those offshore opportunities where returns are right now larger.
Speaker 4: It varies for each.
Speaker 2: Of the individual pools of savings you have, depends on
Speaker 2: how much you'll allocate overseas. But given the size of
Speaker 2: the New Zealand market as an industry, we need to
Speaker 2: allocate more of our savings pool overseas than we do
Speaker 2: here domestically.
Speaker 1: Is that like fifty one to forty nine or is
Speaker 1: it more like seventy thirty eighty twenty.
Speaker 2: It's over fifty percent of the industry would be overseas.
Speaker 1: But that is your obligation, right You have to chase
Speaker 1: better returns for investors, and you just feel those opportunities
Speaker 1: and not here.
Speaker 2: You have to chase returns, but you have to chase
Speaker 2: them safely, and the safety comes with diversification.
Speaker 4: The New Zealand market is quite a concentrated market.
Speaker 2: The companies on the exchange are quite concentrated, and you
Speaker 2: get some of that diversification of exposure to different industries
Speaker 2: by being in other geographies.
Speaker 1: So as that pool that you look after grows and
Speaker 1: you have to chase bigger returns for those clients. Does
Speaker 1: the threshold for a size company or size investment you
Speaker 1: put that money into get bigger as well.
Speaker 2: That goes to the problem we were talking about around liquidity.
Speaker 2: That's the amount of stock which is available for buying
Speaker 2: and selling in a market on any given day. As
Speaker 2: the pools of money you put to work out bigger,
Speaker 2: if you decide not to be in a stock, you
Speaker 2: need to move more and more of your money out
Speaker 2: of it. So you need to have depth of liquidity
Speaker 2: in stocks as as you get bigger. Given the size
Speaker 2: of the saving pool in New Zealand, the number of
Speaker 2: companies which are meeting that threshold is actually becoming smaller
Speaker 2: because they're not keeping up with the rate of growth
Speaker 2: in the savings industry. That's not a bad thing, that's
Speaker 2: just a natural evolution for the market, but there's probably
Speaker 2: within the industry across This is not just a first
Speaker 2: Cape statement, but probably across the industry. The top fifteen
Speaker 2: companies in New Zealand probably meet the long term liquidity
Speaker 2: requirements for long term deployment for a growing savings industry.
Speaker 2: Those stocks will also need to keep up with the
Speaker 2: liquidity requirements of the industry, so it'll be an interesting
Speaker 2: challenge for the market to keep up with the growth
Speaker 2: of the savings industry.
Speaker 1: So there's only fifteen one to five companies in this
Speaker 1: country on our stock market that actually meet the threshold
Speaker 1: of investible for our savings pill right now.
Speaker 2: There's a few more, but that tends to be the number,
Speaker 2: give or take a few which companies tend to put
Speaker 2: their follow allocations into.
Speaker 1: And if you consider takeovers that we've seen over the
Speaker 1: past few years, I mean, the number of large cap
Speaker 1: companies in this country is are only shrinking other than takeovers.
Speaker 3: What do you think the problem is?
Speaker 1: Is it that these companies can't grow therefore they're not
Speaker 1: becoming more attractive or are they just not releasing their
Speaker 1: liquidity onto the.
Speaker 3: Market like they should be.
Speaker 2: In relation to we're talking about public equities at the moment.
Speaker 2: In relation to the two challenges around the public equity markets,
Speaker 2: one is we need to be an attractive place to list,
Speaker 2: and so we need to make sure that we're not
Speaker 2: a place which is unattractive to list and ensuring that
Speaker 2: the balance with regulation enlisting rules is right. Mark Peterson's
Speaker 2: doing some amazing work there with Minister Bailey around getting
Speaker 2: the settings right and with the regulators to make sure
Speaker 2: that we aren't disadvantage. So that's the first step getting
Speaker 2: more companies wanting to raise or access capital in the markets.
Speaker 2: It's the first step. The second part is the one
Speaker 2: of straight out liquidity. There are large holdings within New
Speaker 2: Zealand companies which aren't tuned that often and people continually.
Speaker 2: For example, they're held by councils or government and as
Speaker 2: they go through their thinking around how they want to
Speaker 2: have their balance sheets, you may see further liquidity coming
Speaker 2: from those pockets.
Speaker 4: But that's not within our gift.
Speaker 1: So is that suggesting that the government then could look
Speaker 1: or should look to selling off some of their stakes
Speaker 1: in the gentailors in the likes of Air New Zealand
Speaker 1: or councils and their port ownership.
Speaker 2: Those organizations will do what's appropriate for their balance sheets
Speaker 2: if they do that. That is an example of how
Speaker 2: you would get more liquidity into a market.
Speaker 1: And companies like yours would be interested in investing in
Speaker 1: those of those opportunities.
Speaker 2: Came about again depending on the underlying performance of those
Speaker 2: companies and how they fit into the portfolios.
Speaker 1: But more liquidity being released into the system, you think
Speaker 1: would ultimately be a good thing for our capital market
Speaker 1: should be.
Speaker 3: What about small caps business mid to small.
Speaker 1: Cap companies, the ones other than the fifteen that you're
Speaker 1: actually investing in.
Speaker 3: Why are they struggling?
Speaker 1: Why are they not able to grow to meet that
Speaker 1: investability threshold?
Speaker 3: What needs to happen there?
Speaker 2: There's also a competing force in the mid cap space
Speaker 2: called private capital.
Speaker 4: So private capital is also.
Speaker 2: Now playing a bigger role in New Zealand than it
Speaker 2: has historically. So you list on the exchange to raise
Speaker 2: or access capital, some of that need is no longer
Speaker 2: there as private capital is able to fulfill that need,
Speaker 2: so you're seeing a lot more of that occurring in
Speaker 2: that smaller mid cap space.
Speaker 3: Is that easier to access for companies as well?
Speaker 1: Is that now becoming a popular route because it is
Speaker 1: better and easier rather than listed.
Speaker 2: There are pros and cons of listing versus accessing private capital.
Speaker 2: If you list, one of the big advantages as you
Speaker 2: do have liquidity for the shareholders. They can choose not
Speaker 2: to be invested with you, and they can and they
Speaker 2: can sell their shares. That is an enormous bonus. In
Speaker 2: the private capital space, you have less liquidity, You are
Speaker 2: locked up with that partner, and if you don't like
Speaker 2: that partner, or it doesn't work out, you're kind of
Speaker 2: stuck with them. So there's definitely pros and cons. One
Speaker 2: of the perceived pros of private capital is that the
Speaker 2: cost of accessing it is lower than what is what
Speaker 2: it is to be listing on in exchange, which goes
Speaker 2: to the point about why we need to make sure
Speaker 2: it's an attractive place to list and not having the
Speaker 2: barriers to listing being too high.
Speaker 1: Well, let's talk about how we do that. What functions
Speaker 1: need to be changed. Do they need to perhaps be
Speaker 1: concessions for smaller mid cap companies to list on the
Speaker 1: exchange that aren't the large ones, Perhaps they shouldn't fall
Speaker 1: under climate disclosure, or perhaps they shouldn't need all continuous disclosure.
Speaker 3: I mean, those the things that we should be considering.
Speaker 4: And those are exactly the points which Mark is working
Speaker 4: on with industry support to try and courage the regulatory
Speaker 4: settings to be appropriate for the size of the companies
Speaker 4: which are listening, and he's getting some great traction, and
Speaker 4: so I do feel very positive about the direction of
Speaker 4: travel with that.
Speaker 1: Do you think that something like that would need to
Speaker 1: happen or was that kind of like, do we need
Speaker 1: to be function changes for this to make a difference.
Speaker 2: I do think we need changes and I do think
Speaker 2: we are going to see changes because of the way
Speaker 2: in which both regulators and government are positively engaging with
Speaker 2: both the market and the enzdics on these matters.
Speaker 1: Is there a risk that we'd then swim too far
Speaker 1: the other way and become an unregulated market, which we
Speaker 1: know I wouldn't be good for investors either.
Speaker 3: So how do we find that balance?
Speaker 2: Regulations essential for any market? It provides protection for investors,
Speaker 2: it provides certainty, provides clarity, creates the field of play.
Speaker 2: It's like janan rugby and you need a referee and rugby,
Speaker 2: but if you over referee again, you take some of
Speaker 2: the performance out of it.
Speaker 4: So it's about getting the right balance.
Speaker 2: The part I'm excited about at the moment is that
Speaker 2: there's an acknowledgment of this by the regulator and an
Speaker 2: engagement from the regulator on how they can regulate it
Speaker 2: in a way which works for the players on the field.
Speaker 2: So I do think you're absolutely right we need regulation.
Speaker 2: Just making sure we've got the right balance with the
Speaker 2: referee is key.
Speaker 1: But if there is too much refereeing, as you call it,
Speaker 1: if there's too many rules. Then that's the whole point
Speaker 1: of the capital market effectively being unproductive and underperforming, and
Speaker 1: then investors chase returns elsewhere typically things that are too
Speaker 1: good to be true.
Speaker 4: Is that happening now, I think there's a lesser risk
Speaker 4: of that.
Speaker 2: I think what happens is what we're seeing at the
Speaker 2: moment is if you over referee, people just don't want
Speaker 2: to play the game, and so they'll go and play
Speaker 2: in a different market because that's easier for them and
Speaker 2: it's more fun.
Speaker 3: But there are still some companies out there.
Speaker 1: For example, I just got back from Wellington where I
Speaker 1: filmed it Rasine Paints, incredible New Zealand business.
Speaker 3: The CFO said to me, oh, we never list. There's
Speaker 3: just no way.
Speaker 1: They don't want to be war by private equity, they
Speaker 1: don't want to IPO.
Speaker 3: There's many other big companies out.
Speaker 1: There, as you well know, that have considered listing and
Speaker 1: then gone, oh maybe not. Like we're told that Trade
Speaker 1: Mayor has been teasing going back to the market for
Speaker 1: a couple of years and we're still yet to see
Speaker 1: the right investors a yet to get any inclue of
Speaker 1: when that might actually happen. So even if there are
Speaker 1: these changes at the edges, like, would that even be
Speaker 1: enough for these incredible companies filter In Hogan another example
Speaker 1: in this country, So there's actually even consider listing on
Speaker 1: our market and being subject to public disclosure rules.
Speaker 2: It's you've got to have a why for wanting to
Speaker 2: access capital. Brazin may not need to access capital. Fil
Speaker 2: from Hogan may not need to access capital, so there
Speaker 2: may be no need for them to contemplate listing. Some
Speaker 2: people don't like the disclosure requirements because it's New Zealand's
Speaker 2: a very private country, and so having your financial affairs
Speaker 2: disclosed publicly if you're a large meaningful holder or a
Speaker 2: family owned business which then gets listed, that that sometimes
Speaker 2: carries a disproportionate waiting for some reasons for not listing.
Speaker 2: So I think every company situation is different. I think
Speaker 2: when you want to bring it back to what do
Speaker 2: we need to change if you make it an attractive
Speaker 2: place to list and take off the table a regulatory
Speaker 2: burden or a financial cost of listing. If we can
Speaker 2: address those, you're not going to solve people's desire for privacy.
Speaker 2: There does need to be a public disclosure if you
Speaker 2: are a publicly listed company. Those are some of the
Speaker 2: prices you pay for being having access to that sort
Speaker 2: of capital. So I don't think it's necessarily about it
Speaker 2: fitting or being a solution for everybody. But for those
Speaker 2: for whom it is a solution, we need to make
Speaker 2: it an attractive one.
Speaker 1: As part of this, also just changing the story around it.
Speaker 1: Like you and I are so passionate about this time.
Speaker 1: We talk about this often, but do we need to
Speaker 1: just flip the script and make people excited about listing,
Speaker 1: about celebrating the inside X.
Speaker 4: It's an interesting topic to get excited about.
Speaker 1: Yeah, you and I weird, but we're in these group.
Speaker 2: Look, I do think listing is only one component of
Speaker 2: the capital markets. I do think the other component of
Speaker 2: the capital markets, which is likely to have a more
Speaker 2: immediate benefit, is how we think about investment into long
Speaker 2: term infrastructure projects. Because capital markets, the companies, and the
Speaker 2: evolution and growth of those needed to substantially change is
Speaker 2: a bit like the growing tree. You need to start,
Speaker 2: and we're starting, and so those changes will evolve over time.
Speaker 4: If we're looking for more.
Speaker 2: Immediate hits into our capital market, that's probably going to
Speaker 2: come from private capital and private capital into infrastructure. The
Speaker 2: exciting thing is we're now at least talking about it,
Speaker 2: Like I do think one of the challenges we have
Speaker 2: we need infrastructure as a country. I do think it's
Speaker 2: exciting that we're actually now talking about it as opposed
Speaker 2: to just talking about housing. That conversation's happening, which is great.
Speaker 2: I do think that's great, and I do think although
Speaker 2: a lot of people might not find it exciting, they
Speaker 2: will when the roads get start getting built and the
Speaker 2: bridges start getting built. But for that to happen, people
Speaker 2: need long term certainty over what the plan for New
Speaker 2: Zealand infrastructure. That requires cross party agreement. And the exciting
Speaker 2: part there is that that is at least now the
Speaker 2: direction of travel. The government recognizes that you need to
Speaker 2: have bipartisan cross parties support for a long term infrastructure
Speaker 2: project because long term infrastructure projects take ten fifteen years
Speaker 2: and with a three year government cycle, nobody's going to
Speaker 2: want to come and put capital to work in a
Speaker 2: government project if it's an unsettain outcome in three years time.
Speaker 1: This is the interesting thing though, because all of this,
Speaker 1: whether it's infrastructure or listed companies or private equity, all
Speaker 1: of it is in competition for capital. Do we actually
Speaker 1: have enough capital to go to all of these things
Speaker 1: and to help them all grow and be successful.
Speaker 2: I do think we have access to enough capital, because
Speaker 2: we shouldn't be constraining our views on capital being the
Speaker 2: domestically sourced capital. Yes, we have that, and I want
Speaker 2: to deploy more capital into the New Zealand market, but
Speaker 2: we will have access to international capital, which is far
Speaker 2: great in volume than we can ever produce locally. But
Speaker 2: that international capital needs a certainty of the environment to
Speaker 2: invest into, and so that's why I'm excited about the
Speaker 2: cross party plan for infrastructure.
Speaker 3: What are you see in terms of interest from offshore capital?
Speaker 3: Is your phone ringing cold, like.
Speaker 1: A people calling you saying, MJ, what infrastructure project or
Speaker 1: private equity business?
Speaker 3: Can I throw some money in?
Speaker 2: The phone is ringing very hot from overseas people wanting
Speaker 2: out capital.
Speaker 3: Ah.
Speaker 2: So that is one of the things about being at
Speaker 2: the size and scale we are now, is the phone
Speaker 2: rings hot from other private equity firms overseas wanting us
Speaker 2: to be investing into their funds so they can then
Speaker 2: deploy it wherever they are in the world, sometimes including
Speaker 2: New Zealand.
Speaker 3: What are you telling them if.
Speaker 4: It's not New Zealand.
Speaker 3: No, we're keeping our money.
Speaker 2: Here or well, at the moment, we don't have access
Speaker 2: to the size of opportunity we need to deploy it
Speaker 2: into New Zealand. So we are deploying it overseas because
Speaker 2: it is also achieving diversification for our investors and accessing
Speaker 2: product and returns which you don't get here.
Speaker 1: So while you're putting money and those opportunities, you're having
Speaker 1: this conversation because you actually want to put more of
Speaker 1: that money here.
Speaker 3: You just don't see those opportunities right now. Dounterligned, thanks
Speaker 3: so much your timing and Jack, this was a good chat.
Speaker 4: Thank you.