Capital Markets Report: Why KiwiSaver is an untapped source of capital – Andrew Bayly

Andrew Bayly. Photo / Mark Mitchell

Andrew Bayly is Minister of Commerce and Consumer Affairs. He also holds portfolios across Small Business and Manufacturing and Statistics.

OPINION

Across the financial landscape, there has been an excessive layering of regulation and in our first six months we have progressed financial reforms to reduce compliance costs and cut red tape.

New Zealand’s businesses and households are battling high interest rates, inflation, unemployment, and soft consumer demand.

The Government is determined to fix these problems and has committed to a resolutely pro-growth agenda. A bigger, more productive economy means higher incomes and more employment for New Zealanders, and more tax revenue for the Government to invest in public services like health, education, and transport.

To achieve this, we need to grow the productive part of our economy by unlocking opportunities for investment and innovation. Capital markets have an essential role to play in this recovery effort. But right now, our markets disproportionately favour large firms and are still very shallow compared to other OECD countries. The NZX Main Board has a total market capitalisation of only about $160 billion.

As a Government, we have wasted no time setting about rebuilding the economy. Recently, we removed 11 pages of overly prescriptive affordability regulations from the Credit Contracts and Consumer Finance Act.

We also repealed the Business Payments Practices Act, which would have heaped compliance costs on businesses and not materially improved payment times. We know cashflow and timely payment is crucial for businesses, but a similar piece of legislation has not worked as intended in Australia. Instead, we have set a 10-working-day payment target for Government entities and have started disclosing their payment times. Given the Government spends over $50b on goods and services, prompter payments will make a significant difference to the cashflow of businesses.

The next step is to look at market settings and investor needs, to make sure our capital markets match the strong demand for finance, without unnecessary barriers. We are focused on deepening both equity and debt markets. Doing this will help improve macro- and micro-economic productivity, resilience, sustainability and the living standards of New Zealanders.

A key issue is we simply do not have enough businesses listing on the NZX. In the last five years, there have only been a handful of Initial Public Offerings (IPOs). Increased compliance costs and regulation have made it unattractive for businesses to list on the NZX.

It is particularly difficult for small businesses. Most new listed companies start small and use the NZX to raise capital for growth.

Xero is an excellent example. It was founded in 2006 and listed on the NZX in 2007. It is unlikely this would happen again today.

I have been discussing these issues with industry and am looking at possible solutions.

KiwiSaver

Another vital component for business growth is access to private equity and direct investment. One largely untapped source is the $109 billion of capital held by KiwiSaver providers. It is important that KiwiSaver providers do not have any impediments for investing in great New Zealand businesses and infrastructure projects, where this is in the interest of their members.

Most KiwiSaver funds are invested overseas and while diversification is a crucial part of fund management, there is an opportunity to leverage this capital better for the benefit of homegrown businesses. Currently there are only a handful of KiwiSaver providers doing this. By comparison in Australia, I understand roughly 15 per cent of its $3.8 trillion pension fund industry is invested in alternative assets, such as private equity and infrastructure.

Robust angel and venture capital industries are important for growth. These industries fund early-stage businesses and support them through the valley of death from concept to commercialisation.

Debt funding is also crucial. Businesses need to be able to access debt so they can grow. To support this, we need a well-functioning banking sector.

Only a few weeks ago we also introduced the Customer and Product Data Bill, which will foster greater market competition and will be applied first to the banking sector. The bill paves the way for “open banking” by establishing a regime for secure data exchange. By making data more accessible and shareable, challenger fintech businesses will be able to build new, tailored products and compete with the big banks. Banks will also be able to boost productivity and offer their customers better services, like 10-minute online home loans – something that is already available to Australian customers.

Another focus is looking at changes to the Companies Act. We are working on changes to modernise, simplify and digitise the act. The aims include making it easier for companies to do business with each other and interact with the Companies Office.

Part of this work is the need to clarify the roles and responsibilities of company directors. We need experienced, knowledgeable people to support business growth by taking on company directorships, especially with early-stage businesses.

I’m looking forward to progressing work in these areas and, while times might be tough now, I am optimistic that the future is bright.