More people and companies in more vibrant capital markets.
Access to sound market research and the opportunity to leverage the growing pool of KiwiSaver funds are two standout themes emerging from the Capital Markets 2029 review.
The industry-led review of New Zealand's capital markets is already throwing up some key messages according to Martin Stearne, chair of the review steering committee.
Stearne says there's a clear message from the investor side that availability and access to advice and research is an issue. He says a new code of conduct due out this month following the Financial Services Legislation Amendment Bill will address some of these concerns. The other emerging theme is KiwiSaver.
Stearne says KiwiSaver is working well, with the sheer number of people that are investing their savings underlining its importance.
KiwiSaver has improved liquidity and is now starting to show signs of more innovative approaches to superannuation investments.
Yet, he says more can be done with KiwiSaver. "In other markets, where super schemes started earlier than in New Zealand, the money has been used to fund things like infrastructure."
The Capital Markets review was initiated by the NZX and Financial Markets Authority in January. The industry steering group got underway in early March and it is making good progress.
"This review is really about getting more people and more companies involved in more vibrant capital markets to build productivity, wealth and opportunity for New Zealanders as we head into the next decade," says Stearne.
"A robust review relies on having wide-ranging industry input and we're very pleased with this so far.
"Many groups have approached us directly, and everyone we've asked has been willing to give their free and frank views on how we can lift the breadth and efficiency of our markets."
Comments coming through to the steering group reflect a broad range of opinions.
"In some areas the views are unanimous. In others they reflect different views from different people in the market. This is to be expected."
A consultation paper, put together with support from EY's Brad Wheeler, highlights five high-level areas where the capital markets have improved their performance over the past decade.
It traverses the opportunities and challenges arising from the strength of the SME (Small Medium Enterprise) sector in New Zealand, the limited number of listings on NZX, the level of retail participation in New Zealand capital markets, the advent of KiwiSaver, regulatory considerations, the role of NZX and FMA and tax settings.
Says Stearne: "We have made good progress on the first three main workstreams of regulation, capital pathways and the investor base, and are now moving into market structure and new products."
Stearne says there are some massive opportunities ahead arising from new trends such as the exponential growth of KiwiSaver funds, a thriving financial technology sector, and specifically the fintech sector where new businesses are challenging the existing models.
Preliminary observations from industry
1. The NZ listed equity market has outperformed other global key equity markets in terms of returns over the recent historical period (NZX50 has generated returns of 13.9 per cent pa over the past five years).
2. NZ debt markets have grown in depth and liquidity, with corporate debt offerings well subscribed.
3. An efficient listed secondary market has continued to develop, particularly for larger companies. The adoption of the Financial Markets Conduct Act and related regulations has resulted in "same class offers" allowing existing listed issuers to quickly and efficiently raise capital, which has been seen as a very positive development by respondents.
4. KiwiSaver has been successful in creating a pool of domestic savings and, since inception, has given virtually all participants positive investment returns.
There are some recent developments with respect to product innovation and fee reduction.
5. There has been further strengthening of private capital in NZ with a number of PE funds in NZ raising significant funds in recent years.
Will it be a doorstop?
The report is due out by the third quarter of 2019. It's now in the phase where public feedback and formal submissions are starting to come in.
Stearne says there could be recommendations for various branches of Government — such as the Ministry of Business, Innovation and Employment (MBIE), Treasury and the IRD.
"We're an industry group and we anticipate that we will be making recommendations for folk like the NZX and the FMA," he adds.
While the industry, NZX and FMA can act on the recommendations, Wheeler says ultimately there will be aspects that will need government attention. "There are lots of little things to solve problems and few big things as well," he says.
"Following the release of the report, EY and myself will be available to take it around the market and chat to folk about what it all means."
The review is sponsored by the NZX and FMA, but at arm's length. Neither organisation is represented on the steering committee.
Stearne says the two organisations will review the report for accuracy, but ultimately it's the industry's view. "We're the people who care and we're the people with the incentive to improve things.
"Capital Markets 2029 will bring the capital markets community together to create a 10-year vision and growth agenda for our industry."
NZX CEO Mark Peterson:
"Healthy capital markets are essential for NZ's economic growth. NZX has delivered fundamental changes to the market over the past 15 months, such as increasing on-market liquidity and simplifying the markets structure and rule set — but we only play one part in New Zealand's capital markets ecosystem. It is now important we bring the industry together to focus on accelerating the growth of our capital market."
FMA CEO Rob Everett:
"This review responds to concerns expressed about the overall depth and breadth of our capital markets. From early-stage capital raising and investment opportunities all the way up to main board listings and institutional investor appetite, we felt the time is right to plan for the future. We are keen to see the industry take this forward and take a good look at how the system is working."
Martin Stearne has issued an open invitation to "anyone with an interest in making positive and enduring changes in the way capital is sourced and invested" to make a submission to the Capital Markets 2029 review.
The NZX and the Financial Markets Authority (FMA) initiated the industry-led review of New Zealand's capital markets.
"Capital Markets 2029" is designed to deliver a 10-year vision and growth agenda for the sector.
Currently, S&P/NZX 50 companies generate more than $24.6 billion in GDP for the local economy and employ close to 10,000 New Zealanders.
More than 80 interviews have been completed with key players spanning all parts of the capital markets.
These include investors (retail and institutional), market issuers (for example public companies, private equity and venture capital), and enterprises seeking growth capital.
The steering group has summarised the key themes in the Capital Markets 2029 Consultation Paper, now open for industry and public comment.
● Submissions close on June 7.
Capital Markets 2029 Steering Group
• Martin Stearne (Chair), consultant and a member of the NZX listing sub-committee
• Rob Campbell, chair of SkyCity and Tourism Holdings
• Rachel Dunne, partner, Chapman Tripp
• Ross George, MD of Direct Capital
• James Lee, CEO of FNZC
• David McLean, CEO, Westpac
• Neil Paviour-Smith, MD, Forsyth Barr
• Rebecca Thomas, CEO, Mint Asset Management
• Matt Whineray, CEO, New Zealand Superannuation Fund
• Geoff Zame, Head of Institutional Equities, Craigs Investment Partners.
- Additional reporting Bill Bennett