Fund managers: What next for NZX?

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Fund managers are worried a lack of listings on the NZX may be unsustainable.

Tuesday, October 30th 2018, 6:00AM 1 Comment

In the past year the NZX has had one primary equity listing and 20 primary debt listings.  There were eight de-listings on the main board last year and one IPO.

For the third quarter of 2018, the share market operatorhad a 3.8% drop in total revenue year-on-year. Wealth technologies revenue was down 27.3% while fund management revenue was up 24.7%. Revenue from continuing operations was up 3.8%.

Earlier in the month Elevation Capital called for an overhaul at the NZX, wanting it to focus on doing “a few things better”.

Rebecca Thomas, founder of Mint Asset Management, said whether the NZX was sustainable as an independent exchange was the “$100 million question we’ve all been asking for the past five years. How do we ensure that the NZ index survives as a standalone sustainable entity without being forcibly merged with another exchange?”

She said while the NZX needed issues, it needed to ensure quality. “In 2015 and 2016 we got some less high-quality issues and some of those get into trouble. It’s quality as well as quantity from my perspective.”

With Restaurant Brands shares being bought up by Finaccess Capital, there were few other opportunities to replace that investment with other growth opportunities, she said.

AMP has signalled plans for a 2019 IPO of its wealth management business, which she said seemed to indicate they needed time to get sorted for a third-party investor.

“We are close to very high valuations at the peak of the market, that’s logically a time for more people to look at an IPO so it’s not only surprising structurally but cyclically. This is the time when M&A activity is at its height and potentially private equity is looking to list businesses they’ve held on to for a while in their portfolios.”

She said a significant hurdle was that New Zealand was made up of a lot of small businesses and large ones that were already listed. There were few mid-sized growth opportunities available.

Frances Sweetman, senior analyst at Milford Asset Management, said liquidity on the NZX was becoming more difficult but a strong local share market was important for New Zealand.

“The lack of new listings and increasing number of takeovers has been exacerbated by growing KiwiSaver flows and the increase in foreign ownership from about 35% in 2013 to over 45% now.

“It is in part a global problem: sovereign wealth and private equity funds have growth exponentially, meanwhile the growth in passive funds and short-selling has increased share price volatility. You can see why taking a company private instead of coming to the share market is an increasingly viable and attractive option.

“t is also in part a local problem, we have a relatively small listed market relative to the size of our economy, a high amount of off market trading and high concentration of broking power. If the NZX was more proactive in addressing these specific issues, in particular the concentration of broking power and lack of IPO’s, it would help.”

Pie Funds founder Mike Taylor said it would be positive to have more regular NZX IPOs.

“I would say that it’s integral to New Zealand financial future that we have an NZX and a well-developed capital market/stock exchange.”

NZX has been looking to encourage listings, to keep the market active with lower listing fees and education for businesspeople about the attraction of listing versus other ways of withdrawing capital from their businesses.

Tags: Milford Asset Management Mint Asset Management NZX pie funds

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