Breathing new life into capital markets
Veteran investment banker has been given the job of boosting activity in the next decade, writes Tamsyn Parker
‘Idon’t think the markets are broken at all,” says Martin Stearne,” . . . but there are aspects that would benefit from a bit of an industry stocktake to see how they can be improved.”
It is those “aspects” which Stearne — a former investment banker with First New Zealand Capital — has been asked to look into more closely.
As chairman of the newly formed steering group for Capital Markets 2029, Stearne has less than seven months to pull together a view on what can be done to help the markets grow and continue growing over the next 10 years.
Capital Markets 2029 is a taskforce set up jointly by the NZX and markets regulator the Financial Markets Authority to deliver a 10-year vision and growth agenda for the sector.
Recent years have been a boom time for sharemarkets globally, and New Zealand’s benchmark NZX50 has been a standout performer. But the missing piece of the puzzle has been new equity listings. Last year there were none bar a compliance only listing from logistics company QEX. The year before, just one — Oceania Healthcare.
Globally, equity listings are also down, but few other markets can claim the inglorious distinction of having no new equity listings at all.
And the problem is that it’s not a new problem for New Zealand. There have been other years when new company listings were few and far between.
“It is certainly an issue,” says Stearne. But he is quick to point out there are a few factors at play.
“These things have been cyclical over the years but it is a pattern that is being repeated around the world — a lower number of IPOs [initial public offerings].
“The committee will be asking the question in a New Zealand context — why is that?”
Stearne has his own views on why the issue exists here, but says he wants to talk to New Zealand companies that have chosen not to list, rather than speculate.
“I have some initial views but we are going to interview and speak with a whole range of people that could list and have chosen not to, companies that perhaps decided to undertake a trade sale, and companies that didn’t list in New Zealand but listed elsewhere to find out more of the facts behind the decisions that they are making.”
Others in the industry have pointed to a tide of private equity money which has driven business owners to sell to the highest bidder.
“That is an argument I have heard and is perhaps a factor and goes with a low interest rate environment.”
But, he argues, the sharemarket is a good option for business owners to list and remain substantially invested in their business while seeing further growth funded by the public markets.
Stearne has plenty of experience in helping bring big companies to the market.
He was involved in the sharemarket floats of Z Energy and some of the biggest listings in recent times — the partial sell-down of the Government’s
I think [capital markets] make a real difference for both the investors and the issuers.
stakes in power companies Mighty River Power and Genesis Energy through its mixed ownership model (MOM).
“For the Government and for investors the MOM programme has been a great success.
“It is taking more in dividends now owning 51 per cent than it did owning 100 per cent of them.”
Stearne says there are many latent assets in central and local government ownership that would benefit from capital markets exposure.
“Capital markets impose a greater discipline on operations of those companies,” he argues.
Napier Port is expected to go ahead with an IPO this year and others have pointed to Ports of Auckland as an asset that would benefit from being publicly floated.
There are also hopes that the New Zealand arm of an Australian-owned bank could be floated on the NZX.
The challenge is more around convincing councils and ratepayers to let go of some of their assets.
Politically, more privatisation of central government-owned assets would also be a tough task under a Labour-led Government which strongly opposed the MOM programme.
Stearne also has views on how KiwiSaver’s settings could be tweaked.
In a recent report by Chapman Tripp on the equity capital markets, Stearne wrote a piece that noted KiwiSaver was working well as a means of encouraging personal savings. “. . . but perhaps certain of the settings could be reviewed.”
Stearne says it is far too early for him to talk about what those settings could be, but says one of the main priority areas the taskforce will look at is the capital markets’ investor base, including institutions, retail investors and KiwiSaver.
KiwiSaver is today worth about $50 billion but only 15 per cent of the money is invested in New Zealand and Australian shares.
According to last year’s KiwiSaver report by the Financial Markets Authority, that was less than the 18 per cent KiwiSaver funds had invested in cash and cash equivalents.
Some would like to see KiwiSaver funds given a mandatory bias towards investing in New Zealand companies.
But this raises concerns about Kiwis putting too many eggs in one basket, at the risk of generating a poorer return for the individual trying to save for their retirement.
Stearne has already raised the ire of smaller investors, with the New Zealand Shareholders’ Association this week critical of its lack of representation on the steering committee.
But he is adamant the voice of the retail investor will be part of the process. “They will be invited to have a role in certain of the working groups. And despite not being appointed to steering committee they have still expressed support for those appointed to the steering committee and the overall process.”
He says having the association on the steering committee was a consideration.
“But when we thought about what the various workstreams were — we saw them fitting into some of the working group and perhaps not others.”
Alongside the investor base, the group’s priorities include looking at capital markets pathways and regulation.
Stearne may not be well known to the public but he is well-respected in the industry and was shouldertapped to lead the taskforce by the NZX and the FMA.
“I suppose the type of person they were looking for is someone who had been in capital markets recently but less involved at the present time.
“Someone who knew the investor base, issues and knew their way around regulation. That led them to me.”
Stearne says he is passionate about capital markets and saw it as an interesting opportunity to work with others in the industry.
He first got hooked on investment banking back in 1998, when as a junior he helped with the Ameritech selldown of Telecom and later the Brierley sale of Sky City Entertainment Group.
While Stearne has built a big city career, he hails from small town beginnings, growing up in Southland’s Otautau — 50km northwest of Invercargill — a town of around 900 people at the time.
His dad was a builder and Stearne admits to being quite academic, with an early bent for maths.
“I don’t think it surprised anyone when I took maths at university.”
He did a double degree in commerce and science over five years at Otago University and began his career in Wellington in 1995 at CS Boston, which later became First NZ Capital.
Stearne moved to Auckland in 2002 and left First NZ in 2015 to set up his own consultancy.
He says capital markets matter and are important for both the country and the economy.
“I think they make a real difference for both the investors and the issuers.
“A company can take an idea, seek funding, make a significant difference to the economy with the growth of the company and at same time reward investors for the risks taken.”
Now he just has to find out why New Zealand business are not buying into that.