Weldon has a vision for a super future

Mark Weldon would like to see more New Zealand companies backing themselves and staying at home. Picture / Glenn Jeffrey

Mark Weldon, NZX's chief executive, knew the warning was not to be taken lightly.

Building products giant Fletcher Building's disclosure this week that it has examined the merits of shifting its headquarters to Australia foreshadowed a potential body blow to the capital market.

By itself, such a study - and the implied threat of departure - was serious enough.

Fletcher Building, valued at $4.1 billion, is the NZX's third-largest company. It generates as much as $45,000 in annual fees for the exchange and, by providing work for an army of lawyers, accountants, professional fund managers, bankers and analysts, it underwrites a substantial portion of the infrastructure needed to maintain a healthy capital market.

But the warning followed a raft of other departures, including forestry giant and fourth-largest company Carter Holt Harvey, and Ports of Auckland. It also came amid a weak market for new listings. Last week, accountancy firm Ernst & Young highlighted the problem.

Its global survey of IPOs showed Australia's equity market, underpinned by its enormous compulsory superannuation scheme, was the fourth-most active in the world after France, China and the United States.

The market was abuzz as it digested the implications of the trend.

The sentiment was deftly summed up by Brook Asset Management principal Paul Glass: "I worry my kid will not be able to stay in New Zealand. There are going to be no high-level jobs available. We are going to be a branch office of Australia."

Weldon made his views clear too: "The consequences of denying that there is an issue here at a broader national level in the end game will be an economy that is hollowed out, with our best people and our best companies heading permanently offshore and taking with them our best chances of a great future and standard ofliving."

He has already called for compulsory superannuation and now he wants New Zealand managers, companies and their shareholders to back themselves and fight to retain ownership of companies here.

"There have been a sufficient number of high-profile events [such as Fletcher Building] that this is now a matter for national debate. Ownership does matter.

"I do not think an economy in this century that is production-based or a waged-based economy has a great outlook.

"What really matters is owning, where the profits end up and providing career opportunities out of that."

He said people also needed to have a greater belief in their abilities, instead of selling out cheaply.

"Anyone who looks at the value the Australian owners have extracted from the New Zealand assets they have bought will see there are few that have been sold at an expensive price, in retrospect."

Does that mean he is telling shareholders in Waste Management and Contact Energy - both subject to takeovers from Australian companies - they should sit tight?

He will not comment.

But he is dismissive of those who hold up ill-fated leaps into Australia, such as The Warehouse's acquisition of Aussie discount retailers Silly Solly's and the Crazy Clint's, and Telecom's buy of AAPT, as proof that New Zealand companies can foot it overseas.

"I think the people who have gone offshore branch by branch, the people who have gone offshore and used local managers and the people who have put beach-heads and used scouts - [ jeweller] Michel Hill, [clothing retailer] Pumpkin Patch and Fletcher Building - there are some very good successes there," he said.

Ultimately, however, there is no alternative but for New Zealand to follow the example set by Australia. It has an A$800 billion ($952 billion) super fund that should grow by almost A$100 billion this year.

With so much cash looking for a home, Aussie companies' financing costs are cheaper, putting them at a strategic advantage to those on this side of the Tasman.

The departures to Australia, the relative weakness of local capital raisings and the raft of takeovers are a direct result of this policy.

"The overriding reason that dwarfs all else is the underlying health of the Australian savings pool.

"The savings available for companies to grow out of is just more robust than it is in New Zealand, which has not addressed the issue.

"You hear a lot of people say, 'look where the Australian economy has got to'. My view is that they are only going to go from a trot to a run as a result of what they have got.

"If you are going to use an anatomical metaphor, your savings pool is like your backbone, you really just have to have it. It connects everything else."

The Kiwisaver scheme, which is due to be introduced next year and will require employers to offer superannuation schemes, but unlike Australia does not require people to set aside cash, is a good start.

However, more will be required.

"For the savings pool to become deep and meaningful, you will at some point need something on top of that and that has to be compulsion, like they have in Australia."

Weldon concedes enlisting support for such a scheme, especially in the wake of the referendum on compulsion in 1997, overwhelmingly defeated by a vote of 91.8 per cent against, will not be easy.

"That is politics and what we are talking about here is policy," he said. "I think there is a material difference.

"The forces that are at work in the capital markets and our overall economy mean that people have to have open minds about revisiting issues.

"If you did not, the only sure outcome is that you do not change anything and everything will change around you."

He is also confident compulsion will win favour. There was a growing recognition in the business community of the importance of a national savings scheme to the health of the economy.

"One of the things you have to be optimistic about is that New Zealand should be able to turn on a dime. The US is the Titanic and it takes a long time to move any policy setting. We are more like a jetboat going up one of those rivers in the South Island."

He calls for attention on the regulatory front. Uncertainties over energy, the Resource Management Act, taxation and regulatory policy were at the forefront of business leaders' minds.

"You are not ever 0.62 invested; you are either in or or you are out. A lot of your investments decisions are based on confidence."

For instance, attacks on sharemarket behemoth Telecom and the poor uptake of high-speed internet relative to the rest of the developed world (22nd out of 30 in OECD countries), bother him.

Weldon is also at pains to point out there are many aspects of the market that should give cause for optimism. The NZSX-50 rose 297 points, or 8 per cent, over March, the biggest rise in a single month since 1998.

Meanwhile, the number of people buying NZX data overseas had increased, international participation was strong and about 110 new retail investors joined the market each day.

The close to $1 billion raised in the debt market this year and what he calls a strong pipeline of listings over the next two to three quarters were also positives.

And he sees plenty of opportunity for NZX to grow in other areas, such as the consolidation of registries and settlement in New Zealand.

He said the wave of consolidation in listed markets might one day encompass the NZX. But he sees a need for a boutique capital market.

"You can have a global exchange and large regional exchanges that will be efficient and serve the top 1000 companies on the planet that could be listed anywhere very well. But that will not not provide any service to smaller and medium-sized local companies."

But is Weldon, who has been at the helm since the middle of 2002, planning any transtasman migration or even further afield?

After all, the collapse of discount broker Access, rumblings of an uneasy relationship with some brokers and the Securities Commission, on top of questions over the fundamental health of the capital market, have proved more than a test.

"There are parts of this job that are really difficult to enjoy. There is no question about that. Obviously, people give you a phone call, but I have not got beyond what I am doing."


MARK WELDON

Chief executive officer NZX.
Age: 38.
Partner: Sarah Elliot.
Dog: Tane (a New York City mongrel).
Education:
* Auckland University: First-class honours degree in economics and a bachelor of commerce degree.
* Columbia University School of Law (New York), doctorate in jurisprudence in 1997.
Career:
* After graduating, joined New York law firm Skadden, Arps, Slade, Meagher & Flom as a lawyer and then went on to management consultants McKinsey, advising business heads of several large international organisations on business development and corporate strategy.
* Joined the NZX as chief executive in mid-2002.
Leisure:
* An avid swimmer, he competed for New Zealand at the 1992 Barcelona Olympic Games. Also a keen chess player.