Global turmoil could hit Kiwi investments, NZ Shareholders’ Association chief cautions

The flow offshore needed to be balanced with the requirement for New Zealand companies to have capital, he says. “Ideally, in a perfect world, we would have an option of investing in a company overseas that had a global footprint, or a company in New Zealand that had a global footprint.”

For the health of the economy, investors should pick the New Zealand company every time.

This would allow more Kiwi companies to grow on the world stage – what Mander calls “mini multinationals”.

“We’re too small as a country to have the BPs and Microsofts of this world, but we do have a few really good ones like Fisher & Paykel Healthcare and Infratil that do compete on a global stage for their opportunities and for their capital.”

Mander, who has headed the New Zealand Shareholders’ Association for nearly six years, is puzzled at why more KiwiSaver members don’t realise they are sharemarket investors.

“The majority still don’t realise that they are investors and that’s something that we’re really conscious of.”

There is continued discussion about the KiwiSaver scheme’s policy settings but there is still not enough investor awareness of where fund managers were directing investments, despite information being available.

“I still think there’s more work to be done. Investors should be interested – at least at a passing level – in what their money is doing and where it’s going.”

While a lot of money was going overseas, he says, the investment climate in this country was helped by settings and a regulatory environment here that measured up well compared to some other jurisdictions.

Investor protection

A recent report into technology failings affecting the ASX exposed wider concerns.

“That went way beyond a review into a failed technology project. They talked about governance and about prioritising short-term commercial interests over long-term market integrity.”

The landmark independent inquiry by the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia found that the ASX prioritised short-term shareholder returns over investment in technology, resulting in systemic under-investment.

For New Zealand’s relatively small capital markets, integrity is very important, Mander says

“We’re a small country at the bottom of the world, we need to attract the right pools of capital from both domestic investors and international investors. If we don’t have that ability for investors to trust in our markets, we won’t get a skerrick of it.”

He says striking the right balance between investor protection and making it easy for companies to access capital is a continued challenge.

“New Zealand does have a very good investor protection base, not every country does.”

The association doesn’t “necessarily love” what it sees in some other countries, however.

“For example, in the US, it is really common for the founder of a company to be the CEO and to be the chair. There’s always been different investment expectations in the US and that’s the beauty of a market. Some investors value different things and it’s really hard to argue with the returns that the US market has managed to achieve.”

While there’s been a dearth of main board listings on the NZX in recent years, there have been some secondary listings and the sharemarket operator has said it sees other positive signs this year.

Mander says the shortage of homegrown private companies making the step up to public listing was disappointing. Again, regulatory settings need to be finely tuned to encourage this.

“We want those companies to grow and develop in a way that means they’re not fettered by regulation or overly burdened by regulation.

“We’re also seeing those companies not progressing to public markets, whereas perhaps 20, 30 years ago, they might have.”

Private companies were funded by private equity, bank debt (mainly from Australia) and a small pool of wealthy wholesale investors.

That wasn’t healthy for the broader investment community and for the country.

“Long term, that’s part of the issue for us because you are increasingly getting social and demographic polarisation between different groups of investors and wider society,” Mander says.

There are other incentives to go public.

“You can still raise capital a lot more easily and quickly in a public market than you can in a private world. And that is absolutely critical. We saw the benefit of that through the Covid period, where companies were able to restructure and recapitalise and actually apply growth capital as well.”

Any further hollowing out of New Zealand’s financial infrastructure would be a signal of failure for the country. ‘’It’s the financial plumbing that builds the bridge between local pools of capital and investors and companies who are looking to grow on the world stage and improve New Zealand’s productivity.”

Geopolitical impact

Mander says New Zealand investors are affected not only by international share market volatility but by geopolitics, which also affects the country’s economy.

“When the world catches a cold, so do we.”

The full effect of the oil price shock following the outbreak of war in the Middle East was still to be felt and came at the “worst time” for the country, which was just emerging from the economic doldrums.

“That hasn’t been great for our domestically focused companies and that’s part of that sort of geopolitical theme.”

And although economic recovery would come, that could have a sting in the tail for investors with funds overseas. “You’ve seen some really good international returns because our currency has been weak. Those currency benefits investors have received will unwind and act as a headwind to their returns.”

Mander says despite uncertainty, investors still have an appetite for opportunities stemming from other big trends such as decarbonisation.

Capital raises by Contact Energy and Genesis had been popular.

This had turned what had traditionally been seen as yield-producing companies into more growth opportunities.

He says New Zealand’s retail pools of capital are strong, as was growth in institutional capital, driven by funds, which Mander points out still enjoy substantial PIE regime tax advantages, compared to DIY investors.

Corporate behaviour

The Shareholders’ Association has worked closely with regulators to improve disclosure around executive remuneration.

Controversy over executive pay hasn’t blown up recently as New Zealand has adopted international practices to make reporting clearer and more transparent. Being upfront about pay avoids “the noise” that can surround it, says Mander.

The association’s main focus is fairness.

“We’re about to produce a big report on this. The main thing we’re trying to see here is fair remuneration. If you’ve got a company that is not performing well and still paying out really significant long-term incentives, then that does raise some questions around both incentive design and the quantum of those incentives.”

Mander says there’s a reasonably deep pool of director talent, including in private companies.

“There’s no doubt that the expectations and the requirements that you have as a director are increasing, although there are some things that have been removed in changes to the climate-related disclosure regime.’’

Investors need to know directors are their “agents” in a company.

“We want to see them balance their ability to take risks to create growth, with the need for assurance that they’re doing a good job on behalf of investors. Do they all have the ability and the capabilities to do that? Probably not.

“There is always a need for ongoing training and development. A director who was really good a few years ago may not be quite so good there in the context of a changed world.”

The association maps directors’ relationships.

Directors on some boards don’t have links to others, which he says prevents the sharing of ideas and relationships, while others have a small group of directors who serve on many boards.

“Somewhere in the middle will lie the truth, to make sure you get that right.”

Mander says investor attendance at annual shareholder meetings has been falling for decades, which is understandable given many are in funds and are not direct investors and the events can be hard to get to. But he urges any investor who qualifies and is able to, to attend a meeting.

‘’Meetings are still really important, because it’s your one chance a year to get in front of those directors and eyeball them to ask questions.”