Weekend Herald

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

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I don’t view the New Zealand mar­ket as be­ing in a ter­mi­nal state. The NZX has a clear place in the mar­ket.

James Lee

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.”

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 ?? Com­bined im­age — photos / Alex Bur­ton ?? James Lee says he is un­con­vinced of the mer­its of go­ing to a neg­a­tive cash rate.
Com­bined im­age — photos / Alex Bur­ton James Lee says he is un­con­vinced of the mer­its of go­ing to a neg­a­tive cash rate.

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