A shot in the dark?
Both major parties are banking on a Covid- 19 vaccine for getting NZ back to normal — but we need a plan B, says Kate MacNamara
I don’t view the New Zealand market as being in a terminal state. The NZX has a clear place in the market.
You get the impression fasttalking investment banking boss James Lee could talk you into anything. The 40- year- old has been chief executive of Jarden for three years and is in his 20th year with the company — one of New Zealand’s oldest and biggest sharebroking firms.
Jarden has been around under various names for more than 60 years, but Lee has overseen one of its fastest growth periods with the acquisition of businesses in New Zealand and now an expansion into Australia.
Three years ago, Jarden began talking about getting people on the ground in Australia, where 40 per cent of its clients already do some business.
Eighteen months later, despite the pandemic, it has hired about 50 people, setting up offices in five locations and nabbing some of the biggest names in investment banking in Australia to join its team.
“We decided to move into Aussie partly as a natural extension of our existing business,” says Lee. “Jarden has been in Australia for the thick end of 30 years. Forty per cent of our clients are already over there. What we have seen is the need to have an on- the- ground response to get better access to product and companies.” Hiring staff in another country has been both harder and easier during the Covid- 19 outbreak.
Lee says while it hasn’t been possible to travel to Australia to do the hiring in person, the fact that many potential candidates were working from home allowed Jarden to do interviews without the boss looking over their shoulder.
Instead of taking weeks to bring someone on board, Lee says Zoom has made it possible to do that within days.
While Covid did make it think twice about its expansion, he says the reason for having people on ground has become even stronger with the pandemic. While Jarden is a big fish in the New Zealand investment market — playing a dominant role in bringing new companies to the sharemarket and helping clients raise money, and the wealthy to invest it — in Australia it will be a minnow and virtual unknown.
“Australia is a competitive market. What we are trying to do is all about the people,” says Lee. “Between New Zealand and Australia we will have 50 senior bankers which will make us comparable in size to competitors in Australia.” He says the Australian market is also culturally different to New Zealand.
“Australia is very much an equity market; New Zealand embraces debt a lot more.” That has only been emphasised in recent years with the dearth of initial public offers on the New Zealand stock exchange.
Some New Zealand companies are also choosing to bypass the NZX altogether, instead heading straight for an ASX listing.
Lee says that for high- cashgenerating businesses which can pay a dividend, the NZX makes sense as dividends will always be most attractive to New Zealand investors because of the associated tax credit.
High growth companies, however, need the support of 30 or 40 investors who are prepared to take a punt — a pool of investors which New Zealand just doesn’t have yet, he says.
But he doesn’t believe the local market is knocking on death’s door by any means.
“I don’t view the New Zealand market as being in a terminal state. The NZX has a clear place in the market and the ASX has a clear place in the market for clients. New Zealand can solve that by growing the number of funds in NZ and it is perhaps the KiwiSaver changes that might see
more default providers come through and some of those funds [ moving] around might lead to that.” He points to the $ 300 million in venture capital which the Government has put into play, and says the investment funds which buy into businesses using that money will eventually need to exit and the public market will be needed.
Demand from retail investors has risen with Covid and Lee says low interest rates are only going to keep driving that.
“As we think about a negative interest rate environment, people will be forced to look for yield.” New Zealand’s Reserve Bank has proposed taking the cash rate negative next
year. Lee is not convinced of the merits of doing so. “I don’t understand what the goal is. I get the circle. Effectively it is quasi- funding of governments.
“It is the natural outcome of Covid, materially more debt. For governments to afford it, rates have to go down.” But he is also worried about the side effects of negative rates if that means borrowing costs reduce to virtually nothing and asset prices are pushed up in a version of hyperinflation.
“If I can borrow at zero, I can borrow at very high leverage and I can pay a lot for a building. If house prices are worth three times the replacement cost, we will see new building. We will also see parts of the market where people don’t want to live or giant empty buildings around the world.” He says one of the reasons investment platform Sharesies has become so popular is because some of those who are investing will never be able to buy a house.
“My 12- year- old today talks about what it is going to take today for her to buy a home. We do the maths and she needs to save $ 2333 a week. That doesn’t seem very plausible at 12.” He likens the exuberance in the market to the late 90s tech bubble, when he started out working at sharebroking firm Direct Broking — a business which was independently owned then, but bought by Jarden in 2017.
Lee grew up in Wellington and was no stranger to the financial markets — his father is well- known broker Chris Lee.
“Financial markets have been part of my life right from the start.” But he never intended to follow in his dad’s footsteps.
“When you head out to university, you think ‘ what am I going to do?’ You start going ‘ I’m going to be an economist or an accountant’, which would have been far removed from where I have ended up now. And life is just a funny thing, opportunities just turn up.” He studied commerce first
at Otago and then Victoria University, but began working part- time at Direct Broking in his second year of university. It was while working there that Lee bought his first shares in a company called Cape Range and learned his first hard lesson about investing. “It was one of those magical stories which went from 10c to 70c on the promise of a telco network being built in Kuala Lumpur.
“I went from having no money to — at one point it was enough to buy a new car. I held on thinking if it goes up a bit more I might be able to buy a very nice new car.” Unfortunately the shares halved in value the next day, and halved again the day after that.
He did cash them in to buy a second- hand Toyota Celica — a major comedown from the nice Porsche he had been picturing.
“It was a good first lesson in markets about what a win looks like and what a loss feels like, and a rapid loss too.”
He was approached to apply for a job in the graduate programme at Jarden, or Credit Suisse First Boston as it was then known. He was offered the job by former Jarden CEO and now Fisher & Paykel Healthcare chair Scott St John, but had to weigh it up against a job offer from Westpac.
“He famously told me that I’d be better to take the job at Credit Suisse First Boston at a materially lower salary than what Westpac was offering because it would be a better career path for me. At the age of 20 it didn’t seem like a good idea. But he spoke convincingly.” Three years ago, Lee took over the top job from St John.
Lee says Jarden’s growth plans are all about building up its intellectual property. “It’s good for clients, shareholders and existing staff.”