NZ's super-rich seek safe investments

Friday, 2 August 2019

New Zealand's super-rich are wealthier than ever. According to Inland Revenue, there are now more than 350 individuals in New Zealand with assets worth at least $50 million, including affluent Kiwis based overseas.

Since the global financial crisis (GFC), the world's wealthiest have benefited from measures taken to prop up the economy. Low interest rates and asset price inflation have boosted the coffers of New Zealand's elite, with rates expected to plummet further in the coming months.

As the post-GFC upturn continues and global sharemarkets remain buoyant, how are the New Zealand's super-rich protecting their wealth? Are our savviest tycoons and entrepreneurs taking to the hills with their assets in fear of another big crash? Or are they preparing to double down and cash in on uncertainty as the economy takes a wobble?

'Money makes money,' says Sam Stubbs, managing director of investment firm and KiwiSaver provider Simplicity.

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Cecilia Robinson, co-founder of My Food Bag, pictured with husband James, is looking at startup investment opportunities.

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'The more you have, the more you'll make,' he says, referring to the increase in high net worth Kiwis over the past few years.

Stubbs believes the sharp rise in the number of high wealth individuals – a 75 per cent increase since 2013 – can be partly explained by the rising property market. He says most of those individuals would be sitting on 'paper wealth' such as company shares, land and property.

'In New Zealand, an awful amount of money can be made from property in a tax-efficient manner,' Stubbs says.

Sam Stubbs, founder of KiwiSaver provider Simplicity, sees the property boom as the driver of the growth in super-wealth in New Zealand.

He believes the rise in wealthy individuals can also be partly explained by fast-growing tech companies, and the 'ability to make money faster and build companies more quickly'.

Stubbs, whose firm handles money for some wealthy clients as well as regular investors, says the hallmarks of a wealthy individual's investment portfolio have not changed much over the past few years.

Rich clients want 'diversification' and when they anticipate a downturn, they tend to 'invest more in the things they know, like their business'.

'They are just as susceptible as anyone to hiding their money. But they want lower risk that still returns cash. You'll find they are pretty aggressive purchasers of utilities, for example. You'd be surprised by how simple they keep it.'

Stubbs says high net worth clients also like to dip into asset classes like private equity, managed funds which deploy money into private deals. Private equity demands higher risk for greater reward.

Some famous Kiwis have made their name making big money private equity bets. United States venture capitalist Peter Thiel, who became a New Zealand citizen in controversial circumstances in 2011, continues to back international companies through his Founders Fund. Thiel invested in Kiwi tech startup Narrative in May but invests most of his cash in the US.

A host of top entrepreneurs are on the lookout for deals. Cecilia Robinson, a co-founder of food delivery service My Food Bag, says it is a tough environment for investors to achieve huge returns from typical investments like property and fixed income.

Robinson and husband James own a significant stake in My Food Bag, valued at $120m when private equity firm Waterman Capital took a stake back in 2016. That valuation is likely to be surpassed when the company eventually lists on the NZX.

Robinson is prepared for investment opportunities that may come with a market dip.

'There are always opportunities. A lot of people are waiting and monitoring what's going on. If there's a downturn it would be a good opportunity to buy,' she says.

True to her background, Robinson is looking at startup investment opportunities while interest rates remain 'super-low'. She says she will be cautious around 'crazy valuations'.

'A lot of people are looking at startups and seeing interesting opportunities, and that's where our mindset lies and what we enjoy.

'It comes down to the people and opportunities available. We'll make the assessment on who we believe has potential,' she says.

BNZ handles the wealth of about 1500 of New Zealand's richest people through its private bank arm. BNZ's private bank usually looks after clients with net investable assets of about $1m and family offices with a net worth of roughly $50m.

Private bank general manager Donna Nicolof says wealthy clients like to take a 'long-term view' rather than thinking too much about short-term gains. Like Stubbs, she says high-net-worth individuals want diversification in the current market.

'If you look at geopolitical risks at the moment, we're living in interesting times. Interest rates are low and will be low for some time. As long as the investment strategy is aligned with their objectives, they'll ride it out.

'One of the things that's top of mind [for high net worth individuals] is diversification, particularly with the volatility we have experienced of late.'

Nicolof says high net worth individuals are keen for yield amid low interest rates, with real estate, private equity investments, and infrastructure attractive options.

Jack Powell of Private Wealth Advisers, an advisory firm for high net worth individuals, looks after families, trusts, and individuals with a net worth of up to $100m.

Powell says rich clients want 'defensive investments with a high yield. But those opportunities are rare right now on the back of falling interest rates. As a result of that, we're seeing a tilt towards alternative investments, things like private credit, private equity and venture capital'.

Powell says the wealthy generally 'don't have to take on that much risk'.

'If someone has $30m and they want $100,000 a year, they can achieve that through cash, so can take a lot less risk.'

He warns investors against 'taking too much risk and not being paid well enough for it', citing negative returns on bonds, and low commercial property yields. He advises wealthy individuals of the dangers of trying to keep up with a 'very hot share and bond market'.

Powell wants his clients to be ready to invest if the market takes a dip.

'We set up our portfolios so there's cash available to purchase if we see a correction over the next 12 to 24 months,' he says.