IPOs welcome but must be quality — operators respond to criticism.
Fund managers have hit back at criticism from NZX boss Tim Bennett that they are unwilling to back small Kiwi companies, saying the poor performance of many floats has hurt investor appetite for new listings.
In an opinion piece in the Herald yesterday, the NZX chief executive said signs were emerging that New Zealand's capital markets were losing momentum. He cited, for example, fewer initial public offerings this year.
"We have had similar market conditions to Australia but will only have four IPOs in 2015 compared to around 40 on [the] ASX," Bennett said. "Adjusted for market size, New Zealand should have had six to eight this year."
He said this wasn't because of a lack of local companies looking for capital.
"One of the issues is that parts of our funds management community seem unwilling to research and invest in smaller New Zealand companies - a position at odds with their Australian counterparts," Bennett said. "New Zealand fund managers seem in many cases to be content passively managing KiwiSaver funds at high margins."
Paul Glass, principal at Auckland's Devon Funds Management, said the poor performance of recent IPOs had hurt investor appetite.
"While Tim raises some valid points about too much KiwiSaver money being passively managed and the need for all participants to work together to improve the depth of our capital markets, it also needs to be understood that our first duty as fund managers is to our clients and we will not invest in poor quality or inappropriately priced businesses," Glass said.
"Unfortunately, the poor performance of the majority of recent IPOs only reinforces that view. Where we have been able to identify good quality new listings that have been attractively priced, like [cinema software firm] Vista Group, we have been happy to take a significant position.
"My message is that the New Zealand market is absolutely open for new listings - in fact we actively want and encourage them - but they need to be attractive investment opportunities."
But you've got to put it into context - at the end of the day they're investing someone's money so they've got to justify why they should invest a single dollar into any investment.
Meanwhile, Bennett also said the poor reception NZX's new NXT market - targeted at fast-growing firms valued at $10 million to $100 million - had received in some quarters highlighted the "glass-half-empty approach parts our financial community take to business development and change in New Zealand".
Rickey Ward, New Zealand equity manager at investment firm JBWere, said commentary from market players, including fund managers, could appear negative.
"But you've got to put it into context - at the end of the day they're investing someone's money so they've got to justify why they should invest a single dollar into any investment," he said.
Richard Stubbs, of fund manager Castle Point, said firms such as his needed to be skeptical, particularly when it came to new listings.
"Without a doubt you need to have a healthy level of skepticism, especially with IPOs because history will tell you that it's worth being cautious," he said. "Provided there are quality companies wanting to list on the sharemarket, I'm absolutely certain that there's appetite for them."
FMA chief executive Rob Everett
Another market source, who requested anonymity, said regulatory risks introduced by the Financial Markets Conduct Act, which came into force last year, were forcing fund managers and advisers to "standardise" their approach through a bias towards larger, more widely held and researched stocks, as well as bonds.
FMA chief executive Rob Everett said the licensing regime had been "broadly welcomed" by the industry.
"We don't believe the new regime is leading to standardisation since the FMC Act allows for innovation in products and services, and the licensing regime for fund managers has been created to allow for smaller firms to apply."
