Capital Markets: KiwiSaver reboots capital markets

ASB's Steve Jurkovich.

The well-capitalised NZ Super fund is also giving private investors confidence, say ASB leaders.

ASB executive general manager Steve Jurkovich says KiwiSaver has the power to rejuvenate popular involvement in New Zealand's capital markets and over time the government supported voluntary savings scheme will increase the sophistication of everyday investors.

Jurkovich says many of today's investors have lived through major challenges: the 1980s market crash; the technology bubble and crash in the late 1990s and, more recently, the global financial crisis and collapse of New Zealand's finance companies. These are all serious stumbling blocks, which undermined confidence. "Taken together with our tax rules, it's not surprising most people have taken refuge in property, it's been a far more comfortable investment."

However, Jurkovich says KiwiSaver is changing that: "People didn't take too much notice of their KiwiSaver accounts when there was only two or three thousand dollars tucked away. Having $100 thousand or more invested in the funds sharpens their interest considerably. People start watching the performance on a regular basis and reading financial news."

He says we are already reaching the point where ordinary New Zealanders have considerable sums in their KiwiSaver accounts and that is only going to increase. The first step is that they become more engaged with KiwiSaver, they look more closely at their accounts and the returns. From there they take a greater interest in the structure and management on their investments. That leads to a greater engagement with other forms of investment.

Jurkovich says alongside the KiwiSaver effect there are other changes to the investment world that put everyday investors at ease. "There's never been more regulation and that brings more confidence. There's also more knowledge and understanding. We're now seeing customers ask questions about risk versus return."

And now there's a new generation of start-ups attracting mainstream investors. Jurkovich says Xero's success has done much to draw attention to equity markets.

Overall he is bullish about the state of New Zealand's capital markets. He says the well-capitalised New Zealand Superannuation Fund is also helping give ordinary investors confidence.

Equity capital markets and debt capital markets are in good shape. Jurkovich says investors are now looking to reweight the amounts they put in private equity. "It's never been a better time for corporations and larger companies looking for finance, New Zealand is in a good place."

It's not just local sources of capital, he says. "More than ever the global capital markets are prepared to back a good idea wherever it comes from. In the internet age investors recognise a great idea can just as likely come from Auckland as from New York or Silicon Valley."

Jurkovich sees a major opportunity emerging with owners who have ridden through the economic cycle now wanting to capture some of the value that disappeared during the GFC. "They're not getting any younger. There's a generation of owners who are looking at their options for a transition and that creates opportunity for companies looking to divest or roll up other participants in their industry."

He says if you were 65 and thinking about selling when the GFC hit, you'll now be in your 70s and still thinking about the sale - only now the valuation is likely to be much closer to what you were looking for.

Jurkovich says ASB is different from its rivals because it has a dedicated team in place to help people manage transitions and growth. He says in the past this kind of activity was mainly left to the investment banks and the large accounting firms. However those organisations needed a degree of scale to make the process work for everyone concerned.

ASB is pitching its transition team at a New Zealand-sized scale, which is effectively the mid-market with a strong emphasis on the rural economy. Jurkovich says his operation is geared to deal with the conditions in its home market and the bank's brand is likely to be less intimidating to a mid-scale agribusiness owner than a multinational outfit.

The same approach works further up the market in the agri-capital business where ASB's rural team lead by general manager for rural banking Mark Heer are able to help their customers understand what global investors are looking for - and just as important, what they are not looking for.

Heer says there's a move in these businesses to look more at the total balance sheet, which is both debt and equity. "Traditionally it has been mainly around the debt part of the equation".

He says this links to succession planning, which is something business owners haven't really discussed with their banks in the past and was a problem during the GFC as most of the options were taken off the table. One of the roles of the bank is to help business owners become "investor ready" either as part of secession planning or in order to raise additional capital.