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Strong markets and uncertain times? WE’VE BEEN HERE BEFORE Mike Taylor, CEO & CIO, Pie Funds

Hello there, Markets go in cycles and if you’ve been around a while, you will know that roughly every 10-15 years shares - and even property - can go through some tough times, 1973, 1987, 2000, 2008 to name a few from recent decades. Now, with a bull market in just about everything, the question is, when will this current cycle end? I’ve been watching these cycles for a while now. From a very early age, I knew that I wanted to be an investor. Not every boy’s dream, but the excitement of new technologies and discovering great companies was always the kind of thing I loved. I started investing in 1998 and had quite a good run, turning $13,000 into $200,000 over a handful of years by picking where I saw the future going, working hard to find well-run companies, and worrying about fundamental things like how they’d make money. Some people heard of this and became interested. At 27 I took the plunge and resigned from my banking job, signed up some friends and family and started Pie Funds Management Limited. That was 2007. Unfortunately, my timing couldn’t have been worse. Within months, the GFC hit and everything turned pear shaped. There’s a saying I like: ‘you don’t know who’s swimming naked until the tide goes out’. And it turned out a lot of people in finance were in a little deep, and hadn’t packed their swimmers. Over that first year of Pie Funds, the best times became some of the hardest. No-one wanted to invest during the worst recession since the 1930’s. Add to that, we couldn’t take any funds out of the business, so my wife and I, with our new baby, sold our furniture and car, and did everything we could to stay afloat. However, it’s in the dips that you can achieve the best value, so I worked with my investors, who trusted the process and continued to back me even as we went backwards with the market.

But like the good times, the bad times don’t last forever. Come 2009, the original Pie Growth Fund was up 105%. The thing I’m most proud of, is not the returns, but that I’ve been able to repay that trust. Since then, I’ve continued to build Pie’s track record. We’ve grown from 10 clients and $3m invested, to over 2,000 clients and nearing $1b* invested. Our team consists of over 40 dedicated staff across three offices, London, Auckland and Hawke’s Bay. This growth has been built on results: Pie Funds has made over $275m* for our clients in the past decade. But more than that, it has also been built on a spirit of partnership. In order to scale up and grow responsibly we did something a bit unique. We brought on a number of our early clients as shareholders. And now over 13%* of the money we manage comes from our shareholders and staff, something unheard of in a New Zealand fund manager our size. This means our interests are aligned with our clients’. We invest like it’s our own money, because it is. With uncertain conditions ahead, we believe that is increasingly important. Markets are at historic highs, and many of the fundamentals in large international markets do give cause for concern. Years of historically cheap finance and quantitative easing or ‘money-printing’ have contributed to high asset prices. We don’t know when things might turn, but we’re ready. We currently have the largest proportion of our funds held in cash since the GFC, as we wait for opportunities with greater future value to emerge. I’m not overly negative on the world outlook, but recognise that things don’t go up every year and we are closer to the end of the cycle than the beginning. We recently published a letter in this magazine with the thinking behind that concept of carrying a historically high weighting of cash in our funds, and four other principles that drive our investments, that’s had a great response. If you’d be interested to learn more about how we invest, please do Google search our ‘Pie Funds Five Principles’. And if this has been of interest and you’d like to find out more, we’d love to invite you into our offices in Takapuna or Havelock North for a chat. You can organise a time by calling or emailing through our website. Thanks for taking the time to read this letter, and my best wishes for the remainder of your journey. Yours Faithfully

MIKE TAYLOR miketaylor@piefunds.co.nz www.piefunds.co.nz

*As at 31 October 2018. To download our funds’ product disclosure statements, go to www.piefunds.co.nz. Past performance is not an indicator of future returns. This is general information only. Before relying on it, we recommend you speak with an expert in this regard.

High KiwiSaver Fees are DUMB! Only JUNO offers low, fixed fees Paying less in KiwiSaver fees could mean a huge difference in savings by the time you reach retirement. Use our online calculator to estimate how your KiwiSaver balance could grow by switching to our low fees.

Find out how much you could be saving at junokiwisaver.co.nz Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. The Product Disclosure Statement is available at www.junokiwisaver.co.nz

Contents IN THIS ISSUE REGULARS

YOUR INVESTING Personal Finance

16. Itʼs a Party

24. How a Business Gets Bigger

The launch of the JUNO KiwiSaver Scheme.

How can you successfully grow your business? Eleisha McNeill finds out.

18. What We Like Craggy Range Restaurant, ASB Classic tennis event, Scotchbox whisky delivery service, and the Heletranz Art by Air experience.

20. Essentials: The Bright Side There’s nothing mellow about these delightful yellow wares.

76. Subscribe to JUNO

30. Millennial Magic? Claire Connell asks is it easier for millennials to start their own business than it was for previous generations?

36. Could a Board Help Grow your Business? Is your business missing out on fresh ideas and viewpoints? One answer could be appointing a board of directors.

Be in to win a COAST luxury lounger when you subscribe.

38. The Sky is Not the Limit

78. Book Reviews

Rocket Lab’s Peter Beck shares why Kiwis should be aiming to build billion-dollar businesses.

Sarah Ell reviews The New Zealand Money Guide, by Lisa Dudson, and 100% Kiwi Business, by Ryan Jennings.

40. KiwiSaver: A Guide for the Boss All you need to know about KiwiSaver if you own a business or if you’re a contractor.

42. Exit This Way Amy Hamilton Chadwick asks the experts how best to cash up your firm and walk away with your head held high.

44. The Million-Dollar Question Martin Hawes shares how to diversify using a lump sum of money.

Check out our new regional investment section, featuring Marlborough (see insert)

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Craggy Range Restaurant SEASONAL HAWKE’S BAY DINING | WORLD CLASS WINES | STUNNING VIEWS

CRAGGY RANGE RESTAURANT IS BACK FOLLOWING A FULL REFIT Experience Head Chef Casey McDonald’s outstanding locally sourced Hawke’s Bay produce with 360º views of vineyards and Te Mata Peak. 253 Waimarama Road, Havelock North, Hawke’s Bay, New Zealand P +64 6 873 7126 E info@craggyrange.com www.craggyrange.com

How a Business Gets Bigger

The Lowdown on Millennials

Peter Beck: The Sky is Not the Limit

Exiting Your Company

How to Diversify Your Lump Sum

Investing in Hops

YOUR INVESTING Personal Finance

46. Love it or Lose it

59. Get Your Kids Set to Save

Family lawyer Jeremy Sutton gives the lowdown on going into business with your partner.

Experts give their best tips for giving children the money skills they need.

48. 5 Mistakes to Avoid in Business

64. Jake Millarʼs Unfiltered Game-changer

PwC’s Damian Tuck gives his best tips for success.

50. Are Bonds Still the Right Choice? Bonds used to be a safe haven, but it’s worth checking if they’re still right for you, says Jack Powell.

54. Business Vision We showcase innovative Kiwi companies.

56 Top of the Hops The rise of craft beer brings opportunities to invest in New Zealand hops.

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Mike Taylor, of Pie Funds, on the company’s successes.

66. Could KiwiBuild Hit Your House Price? The experts explain how the government project might affect your home’s value.

68. Beginnerʼs Guide to Property Investment Learn tips for funding your first rental property.

72. Valocity Property Update Valocity crunches the numbers on residential property.

PERSONAL FINANCE

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The Future of the NZ Dollar

Cameron Bagrieʼs Economic Update

Nobody Wins a Trade War

The Latest on 5G

Animal Fans Have Their Say

The Future of Brexit

YOUR INVESTING Market Insights

81. Whatʼs the Future of the NZ Dollar?

88. Nobody Wins a Trade War

New Zealand’s wait-and-see approach on interest rates will have big implications for our currency, says trader Steve Ruffley.

Victoria Harris explains what the US-China trade war means for investors.

82. Stocks on the Move Mike Ross provides a backdrop to the rises and falls of four stocks on the Australian and New Zealand exchanges.

84. Snapshot A glance at events affecting the global economy.

86. Economic Update Economist Cameron Bagrie looks at how NZ is faring.

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91. The Race to 5G Chris Smith looks at the race to offer 5G, and how to invest in it.

94. Animal Fans Have Their Say Animal cruelty tops the list of investments to avoid, writes John Berry.

97. Breaking Up is Never Easy Britain’s due to leave the UK, but it’s still unclear how this will happen, says Andrew Kenningham.

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Meet some of our

Contributors

CAMERON BAGRIE

JOHN BERRY

AMY HAMILTON CHADWICK

Cameron is the managing director of Bagrie Economics. He was previously Chief Economist at ANZ, a position he held for 11.5 years. Bagrie Economics is a boutique research firm.

John is co-founder and chief executive of Pathfinder Asset Management. Prior to Pathfinder John worked in investment banks and law firms, including at Deutsche Bank Structured Capital Markets.

Amy specialises in property and finance journalism. She has been a writer and editor for almost 20 years. Amy is a former editor of NZ Property Investor magazine and is a registered financial adviser.

ANDREW KENNINGHAM

ELEISHA MCNEILL

ANDREW NICOL

Andrew has worked for Capital Economics since 2011. He was previously an economic adviser for the United Kingdom Foreign Office and worked for Merrill Lynch in the City of London.

Eleisha has been a journalist for more than 20 years and has written and produced documentaries for Canadian and American television. Sheâ&#x20AC;&#x2122;s a writer for business.govt.nz.

Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has over 15 yearsâ&#x20AC;&#x2122; experience in banking, finance, and property.

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PAUL GREGORY

VICTORIA HARRIS

MARTIN HAWES

Paul is head of investments at Pie Funds and the JUNO KiwiSaver Scheme. Before joining Pie in 2018 he worked at the Financial Markets Authority (FMA) and before that, the New Zealand Superannuation Fund.

Victoria is a senior analyst at Pie Funds and a portfolio manager for the JUNO KiwiSaver Scheme. Before joining Pie Funds, Victoria was a senior analyst and co-portfolio manager at Milford Asset Management.

Martin is the chairman of the Summer KiwiSaver Investment Committee. He is an authorised financial adviser and offers his services throughout New Zealand. He also presents at seminars.

KIRSTEN PATTERSON

CHRIS SMITH

JEREMY SUTTON

Kirsten is the Institute of Directors’ chief executive. She’s a qualified lawyer, chartered fellow of the Human Resources Institute of New Zealand, and has extensive leadership experience.

Chris is the general manager at CMC Markets. He has more than 15 years’ investing experience, with a passion for the financial markets, and global equity, commodity, and forex markets.

Jeremy is a senior family lawyer, specialising in divorce cases where there are significant assets, including family trusts and complex business structures.

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JUNO 13

There are two ways businesses help New Zealand and New Zealanders. One is as part of our stock exchange, as they grow bigger and add value to our economy. We can all invest in this business universe and watch it grow.

Why Would You Start a Business? Entrepreneurs have innovation, smart ideas, and a capacity for risk built into their DNA. One chief executive was painting walls at 2am with her friends and family, to meet the deadline for opening a restaurant. Another spent a sleepless night wondering how he’d find money to pay his staff during the Global Financial Crisis. Yet another beginner boss was trying to do everything herself, down to projectmanaging a build and manning the reception desk. These are the realities of starting a business. I have huge respect for the people I interviewed as case studies for this business issue of JUNO: Burger Burger’s Mimi Gilmour Buckley, Heletranz’s Sofia Ambler, and Perceptive’s Chris Pescott.

The other is directly, as an investment in your own future wealth. This is an investment that’s risky at the start, but ultimately rewarding as you employ others and grow. You can be your own boss and watch your dreams become reality. In this issue, we follow the life-cycle of the typical Kiwi business. Why start a business? Do you even want to grow? Where can you get help? And then, how do you prepare to pass it on? How you turn that payday into an income stream for the rest of your life? I’ve watched our publisher, Jacqueline Taylor, run JUNO magazine and juggle all the roles a manager and mother has to do. And again, I have a huge respect. It takes vision, determination, and a special mindset to start and develop a successful business. At the start, I wondered why people do it. Now, I think I know.

PUBLISHED BY: Jacqueline Taylor JUNO Investing Magazine, Level 1, 1 Byron Avenue, Takapuna, PO Box 33-1079, Auckland 0740

junoinvesting.co.nz JUNO is a financial-investment magazine published quarterly by Jacqueline Taylor. You need JUNO magazine’s written permission to reproduce any part of JUNO. Advertising statements and editorial opinions in JUNO reflect the views of the advertisers and editorial contributors, not JUNO magazine and its staff. JUNO’s content comes from sources that JUNO magazine considers accurate, but we do not guarantee its accuracy. Charts in JUNO are visually indicative, not exact. The content of JUNO is intended as general information only, and you use it at your own risk: JUNO magazine is not liable to anybody in any way at all. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. JUNO magazine does not give any representation regarding the quality, accuracy, completeness or merchantability of the information in this publication or that it is fit for any purpose. To advertise in JUNO, you must accept JUNO magazine’s advertising terms and conditions. Please contact jenaia@junoinvesting.co.nz for a copy. PRINT ISSN 2422-894X DIGITAL ISSN 2422-9741

Competition Winners TAHITI HOLIDAY Nicole Pearson

Each of them overcame what looked like impossible odds to set up their own companies.

Brenda Ward JUNO Editor

Founder, Editorial Director & Publisher Jacqueline Taylor

Designers Rachel Lochhead, Ashleigh Whitmore

Retail Distributors Gordon & Gotch

Editor Brenda Ward – brenda@junoinvesting.co.nz

Digital Communications Stephanie Munro – stephanie@junoinvesting.co.nz

Deputy Editor and Sub-editor Claire Connell – claire@junoinvesting.co.nz

Executive Chairman Mike Taylor – mike@junoinvesting.co.nz

Senior Designer & Digital Designer Mark Glover – mglover@junoinvesting.co.nz

Printer Crucial Colour

Brand & Advertising Manager Jenaia Clarke – jenaia@junoinvesting.co.nz

Distribution Marketing Impact & Finely Finished Limited

Contributors Cameron Bagrie, Martin Hawes, Eleisha McNeill, Kate Geenty, Paul Gregory, John Berry, Amy Hamilton Chadwick, Damian Tuck, Steve Ruffley, Simon Bryant, Naomi Ballantyne, Sarah Ell, Mike Ross, Chris Smith, Victoria Harris, Andrew Kenningham, Andrew Nicol, Jake Millar, Kirsten Patterson, Jeremy Sutton and Jack Powell

TIM WEBBER SUBSCRIPTION PRIZE Tessa Pohio NELSON CIDER FESTIVAL Lisa Antonopoulos and Joy Page DARK HEART BEARD PACKS Thomas Stevens and May Loh

Commercial Offset and Digital Printers

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crucialcolour.com

like some apple pie?

New Zealand’s premium apple growers are earning double digit returns. Smarter growing practices, massive investment in developing exclusive varieties, and a growing appetite for apples in Asia and the Middle East are just some of the reasons why Hawke’s Bay apple orchards achieved an average return on assets of 19.5% from 2013 - 2016*. The apple industry is now one of New Zealand’s most proﬁtable primary sector performers that’s set to become a billion-dollar exporter by 2022. With MyFarm, you too can have a piece of the pie through syndicated investments in professionally managed orchards targeting monthly cash returns of at least 8% p.a.

Find out more about joining the MyFarm family of investors. Ask for your copy of our Investment Guide at myfarm.co.nz or phone 0800 693 276. *Ministry for Primary Industries 2017 Pipfruit Monitoring Programme Offers from MyFarm Investments are open to investors who fall within the exclusions applicable to offers made to “wholesale investors” as set out in Schedule 1, clauses 3 (2)(a)-(c) and 3 (3)(a)-(b)(ii) of the Financial Markets Conducts Act 2013 (FMCA).

It’s a Party! The JUNO KiwiSaver Scheme Launch

The JUNO KiwiSaver Scheme celebrated its launch in August, with a cool, purple-themed party at the Auckland Museum Events Centre. The scheme’s founders, Jacqueline and Mike Taylor, introduced the evening, attended by around 300 people. They explained how they brought together JUNO magazine’s plain English skills with Pie Funds’ financial expertise to create a product that’s brought disruption to the KiwiSaver market. The JUNO KiwiSaver Scheme subscription model of low, fixed, monthly fees in dollar terms, plus no fees for under 18s and balances under NZ$5,000, make it a KiwiSaver scheme like no other. Inspirational Kiwi Jess Quinn spoke about her own journey since losing her leg to cancer as a child. She learned to invest in herself and found new strength from sharing her story and touching people’s lives. Singer Bailey Wiley wowed the audience with her songs, and then dance music by DJ Kieran Bell brought the evening to a close.

Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read the Product Disclosure Statement at junokiwisaver.co.nz

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JUNO 17

REGULARS

What We Like A showcase of the hottest products and events that are the talk of the town.

Best of the Seasons Fresh local food, great wine, and a modern interior inspired by the Hawke’s Bay landscape make Craggy Range’s newly refurbished restaurant a must-visit in the Bay.

“His creativity and innovation have really elevated our food offer to match our world-class aspirations, and the relaunch will help us continue the journey to becoming one of the world’s leading destination restaurants.”

The interior of the restaurant has undergone a similar transformation, following a full refit over the winter.

Craggy Range is a family-owned winery and cellar door established in 1997. It sits in the shadow of the spectacular Te Mata Peak. For those who like to dine and relax, without the need to drive, there’s also luxury accommodation on site.

The restaurant’s warm, understated luxury and design are inspired by the seasons, reflected in a natural colour palette.

SUMMER 2018

The restaurant has been through “significant evolution” since McDonald started, says Craggy Range hospitality manager Kristine Kilpatrick.

Since coming on board a year ago, head chef Casey McDonald has brought with him a passion for seasonal and local produce, forming close relationships with local farmers and suppliers, and taking inspiration from Craggy’s own fruit and vegetable garden, transforming the restaurant’s menu.

With an interior created by design studio Izzard, the upgrade includes an expanded bar area, comfortable booth seating, and an open, bespoke kitchen.

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Many diners choose the local tasting menu, including regional produce like crayfish from nearby Porangahau, octopus from Mahia, and Otane beef.

Craggy Range Restaurant’s success was rewarded with two hats at the Cuisine Good Food Awards, an accolade awarded to just a handful of restaurants.

Craggy Range Restaurant is open for lunch and dinner seven days a week. craggyrange.com

W H AT W E L I K E

WIN

JUNO has a Womenʼs Week Courtside Box (worth over $850) for six to give away. Go to junoinvesting.co.nz/ competitions. Competition closes 14 December.

Down to a Fine Art As the helicopter banks over the coastline and drops lower, the strangest objects come into view.

Have a Ball by the Court The 2019 ASB Classic is set to be the must-attend event of the summer, with a stellar player line-up matched by superb off-court food, beverage, and entertainment.

Off court, New Zealand top chefs Josh Emett, Michael Meredith and Martin Bosley will create some highquality menus, as well as some exclusive pop-up dining venues.

This year you’ll see Grand Slam champions Caroline Wozniacki, Venus Williams and Victoria Azarenka, plus previous men’s champion John Isner.

Courtside boxes are available by the session, or as a package for the ‘Final 4’ sessions during Women’s Week. It’s perfect as a Christmas gift or just as a way to relax and unwind.

Crowd favourite and renowned showman Gaël Monfils will be making his much-anticipated return, while Tomas Berdych has confirmed he’ll be making his first competition appearance.

The ASB Classic women’s tournament runs from 31 December to 6 January. The men’s follows, from 7 to 12 January. Tickets from Ticketek. Premium hosting is available via coneystanleyevents.co.nz

Across the fields, there’s a landscape that looks like a water maze, a long red tubular tunnel, and a giraffe. A giraffe? Yes, it’s a giraffe sculpture. Then suddenly, we also see a real giraffe from the owner’s own wild animal collection, grazing below. We’re flying over Gibbs Farm on the Kaipara Harbour, north of Auckland, where Alan and Jenny Gibbs have created an open-air sculpture park that rarely opens to the public. This day, we get a sneak peek from the air.

A Neat Idea

WIN

JUNO has a Scotchbox prize to give away. Go to junoinvesting.co.nz/ competitions.

Wellingtonian Gordon McBride’s passion for his favourite alcoholic drink sparked an idea for a business. The self-confessed ‘whisky nerd’ set up Scotchbox, a subscription service delivering whisky and gin samples every month to loyal fans around the country. When McBride was learning about his favourite drink, he found buying full-sized bottles expensive, and often, he was left with a large bottle he didn’t like. He figured there was a gap in the market for keen spirit drinkers in New Zealand who wanted to broaden their tasting horizons. Samples were the solution, and now he imports mostly Scottish whiskies directly from Europe. Whisky is made from only water, yeast, and barley. “For three ingredients, and the environment you store it in and how long for, you get an amazing variety of flavour and intensity,” says McBride. As part of the service, each month you get four 30ml samples of hand-picked whiskies, along with comprehensive tasting notes McBride writes. The boxes make a great gift for those hard-to-buy family and friends, he says. There’s also a gin subscription service, and McBride says his offerings may expand in the future, depending on demand. scotchbox.co.nz *There’s a special 10 per cent discount code for JUNO readers who purchase online. Just enter JUNO_10 at the checkout. The code expires 15 February 2019.

We’re on the new scenic Art by Air package launched by Heletranz Helicopters. This taster sets the tone for a day of art indulgence to follow. After exploring the region by air, the helicopter lands at the Sculptureum, a landscaped sculpture garden and art gallery. Here Picassos and Miros rub shoulders with Kiwi modern art, crafts made from found objects, and pop-art pieces, including giant pink plastic snails. After exploring, we talk about our experience over a three-course meal with bubbles on the terrace at Rothko restaurant. heletranz.co.nz

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JUNO 19

REGULARS

Alessi Tigrito Cat Bowl askew.co.nz

Klizia 97 Whale Stapler in Yellow pepastationery.co.nz

COMME des GARÇONS Parfum scottiesboutique.co.nz

Stolen Riches Sneaker Lace in Huckleberry Yellow superette.co.nz

Jomeis Fine Foods Turmeric Latte jaylafinefoods.co.nz

Tom & Teddy Octopus Swim Trunk smithandcaugheys.co.nz

DiorColorQuake1 Sunglasses dior.com

Areaware Nail Bottle Opener goodthing.co.nz

Vifa Stockholm 2.0 Speaker in Sand Yellow vifa.dk

10. Batchwell Pineapple & Ginger Kombucha batchwell.com 11. LEGO Storage Brick 4 alliuminteriors.co.nz

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There’s nothing mellow about these delightful yellow wares.

ESSENTIALS

7. 8.

9. 10.

11.

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JUNO 21

Issue Nineteen

Summer 2018

Business Noun (Australia & NZ)

A person, partnership, or corporation engaged in commerce, manufacturing, or a service; profit-seeking enterprise.

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â&#x20AC;&#x201C; Dictionary.com

“What do you need to start a business? Three simple things: know your product better than anyone, know your customer, and have a burning desire to succeed.” – Dave Thomas, founder of Wendy’s

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YO U R I N V E S T I N G

former chief executive of Air New Zealand and Icebreaker. “Say you’re a plumber,” says Fyfe. “When you make that first step of growth from sole trader to employing people, the first big conundrum you have is that your job changes.

How a Business Gets Bigger Getting a business off the ground is a huge achievement, and you may be quite happy with where yours is right now. But if you want to grow, Eleisha McNeill has the low-down.

Small businesses with less than 20 staff are incredibly important to New Zealand. They make up around 28 per cent of our gross domestic product (GDP), and provide jobs for around 29 per cent of all employees. But most small businesses don’t want to – or can’t – grow. Why not? “In some of those businesses, the productive asset is often the person who’s running the business, so there’s no scope to grow,” says Ben Fath, senior lecturer in the Graduate School of Management at the University of Auckland Business School. “Outside that group of owner-operators, whether a business can grow depends on the growth aspirations of the person running the business.” Businesses measure growth in sales, market share, number of employees, and profit. Of course, profit is the most common reason for people to grow their businesses.

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“Rather than spending your day out plumbing, now you’re spending time on invoicing, on recruiting; you’ve got to understand payroll, tax, and health and safety. “You’re no longer a plumber, you’re a manager of plumbers. You need to think about whether you want that.” Fyfe has worked for all kinds of companies, both big and small. In the UK, he worked for fledgling ITV Digital. He’s also invested in a number of Kiwi startups, and knows all the trials, challenges, and opportunities they face. “At every step of growth, you generally have to invest ahead of the growth coming – you need to be able to pay employees, pay for that accounting system and the office space. “In that first stage of growth, when you’re spending all that money, you lose money until the revenue starts coming in,” he says. “You need to plan, and understand that risk.” Plan for profit When he invests in small businesses, Fyfe says he tends to be cautious of growth unless the business has a clear business model around that change, and how they’ll create a profit margin around it. “I see too many businesses that try to grow without knowing the answer to that question, hoping it will miraculously appear downstream. For some it does, but for many it doesn’t, and of course you only hear about the successes,” he says.

Are you ready for growth?

Ben Fath says growth prospects are usually better for businesses founded by someone who knows their craft – someone with industry knowledge and contacts.

Hiring your first employee is a big milestone on your business journey. It can redefine your role in the business, says Rob Fyfe,

Research has also shown that people who’ve worked overseas or in large corporations normally have strong growth aspirations

Your growth plan could outline what the growth will look like, and where you want to be at different stages, giving you targets to measure your success.

YO U R I N V E S T I N G

for their own business, and think about and plan for growth when they start it. Reasons to grow your business •• •• ••

WHAT HELP IS AVAILABLE? Government help • Business.govt.nz is the government’s website for small business, providing all the information you need to start, run, and grow a business in New Zealand. Grab free tools and resources around laws, compliance, tax and accounting, staffing, workplace policy, and business plan templates. There’s also the Choose your Business Structure tool, which helps a small business owner decide the best way to structure their business. • The Regional Business Partner Network helps you work out what kinds of government help you might be eligible for. It can also give you information and tools to help build your skills and knowledge, and introduce you to business networks. • People on benefits who want to start a business may be able to get help from the Flexi-wage programme. • Te Puni Kōkiri’s Maori Business Growth Support helps Maori businesses start and grow, and Pakihi runs free workshops and mentoring for Maori businesses. Other support • Business Mentors New Zealand charges a small annual fee, and mentors volunteer their time to help get new businesses off the ground. • If you’re just starting out, the PopUp Business School complements traditional business support by getting people started and feeding into their mentoring and support schemes. • There are 30 local Chambers of Commerce around New Zealand offering training, information, advice, information, and support. • Local small business meet-ups happen all around the country – search ‘small business meet-ups’ online.

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••

You can take a step back, delegate, and focus on growth, says Fath. The cost of providing a product or service reduces with scale, says Fyfe. Scale brings resilience. “I use the example of the airline industry,” Fyfe says. “If you have 100 planes, your competition has five planes, and you both have a plane become unserviceable, that plane’s only one per cent of your capacity. You can move things around and still get everyone to their destination. If it’s 20 per cent of your capacity, that can have a major impact on the service.” Growth may encourage good employees to stay, giving them a career path within your business. If more growth means more profit, you can invest in new technology to improve service, quality, and reliability. You can invest in new products or services, and better understanding your customers.

Plan for growth Growth takes planning, time, and money. Your plan could outline what the growth will look like, and where you want to be

at different stages, giving you targets to measure your success. It can also help you work out how much you might need to invest to start growing. The biggest risk for business owners is usually money. Many small businesses fund growth from their owner’s own pockets, which can put their personal assets at risk. “The risks associated with growth require commitment,” says Ben Fath. “People may choose not to grow because they don’t want to transfer a business risk into a private risk, say by securing a business loan with their house or personal funds.” Another challenge can be finding and keeping the right people. What the government’s doing Finance Minister Grant Robinson says the coalition government’s economic plan includes policies to support business investment and growth. “We know that strong businesses mean a strong job market for New Zealanders.” He says a NZ$1 billion research and development tax credit will be an incentive for innovation and growth, and the Provincial Growth Fund is investing in programmes to help develop regional businesses.

ROB FYFE’S TIPS FOR A STRONG, ENDURING BUSINESS • Understand your customers and what they need. • Understand your competitive advantage. What are you going to do better than your competitors? • Have a clear plan and know how you’re going to build and grow a viable business. • Don’t get seduced into profitless growth. Make sure you’re always protecting your gross margin, because that’s the future viability of your business. The gross margin is what the company keeps of each dollar of sales. • Communicate openly, honestly and transparently with your team at every step of the way. • Ask the right questions. Your customers and front-line employees have insights into any new product or service. Never underestimate the power of those insights – they could be the key to growth.

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Burger Queen Mimi Gilmour Buckley Co-founder of Burger Burger restaurant Mimi Gilmour Buckley, 34, and her team have just raised NZ$2 million to launch 12 new Burger Burger restaurants across New Zealand. Most entrepreneurs would find that a frightening level of growth for a young hospitality company. But not Gilmour Buckley. “I just don’t have that fear,” she says. “You sometimes feel like you’re a little bit out of your depth, but you just keep going.” Her entrepreneurial spirit was nurtured by parents who both had their own businesses. “They were really clear that there are opportunities out there. If you worked hard enough and you wanted them enough, there was a pretty good chance of you getting them.” After running a catering business at 16, the Elam School of Fine Arts graduate rejected a career in advertising to instead learn hospitality at a handful of restaurants in Sydney. Then she was a co-founder of Kiwi restaurants Mexico and District Dining, and the creative director of the Taste of New Zealand Food Show. “It was just a crazy three years. We opened six restaurants. I worked long hours and had to make sacrifices, but it was a huge personal growth time for me.” Then she made the tough call to sell her share of the restaurants and start her own restaurant, Burger Burger. “ASB gave me a loan and my mum provided me with the security for it – against her lawyers’ advice. But she said, ‘She’s my daughter and I believe in her.’ We all built the first Burger Burger together, painting walls at 2am. It was just out of control, crazy, how successful it was.” Gilmour Buckley’s business tips are simple. Pick the right people. •• Identify where your strengths lie and don’t be afraid to ask for help. •• Get the best advice. “I’ve paid off some pretty hefty chunks of debt over time through making unnecessary mistakes and that’s why I now have a strong commercial and financial team.” •• Don’t try to be good at everything – it’s just not possible for one person. •• Read, watch, talk to people, and never stop learning. •• Sometimes you just have to trust your gut. “It’s not all logic, because if it was, everyone would be doing it. You’ve got to just jump off the cliff at some point.” – Brenda Ward ••

Above and right: Mimi Gilmour Buckley at her Burger Burger restaurant in Auckland.

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Attractive Deal Chris Pescott Perceptive chief executive When Chris Pescott started his business, Perceptive, as a university student, he decided he would one day sell it for millions of dollars. “At 23, I was studying and I decided to spin out a project into a research-based insights company. Then we basically started growing,” Pescott says. “Towards the end of the first year, we picked up a contract with Sony, which was to be a catalyst for us getting some scale and some credibility.” Then the Global Financial Crisis (GFC) hit. The business barely survived, losing clients and about NZ$250,000 of revenue overnight. “We really struggled, but we survived and learned a lot of valuable lessons,” Pescott says. After realising how fragile his business relationships were, in 2010 he introduced a new annuity-based product, so clients could subscribe to ongoing data services and insights. Soon he had 50 staff, with offices in Auckland and Sydney, and more than 250 clients. “My plan was simple. I always wanted Perceptive to be attractive enough that someone in the marketing industry would want to buy us.” Over the whole journey, Pescott had a pretty good idea who he’d sell the company to: Clemenger Group, Australasia’s most successful marketing communications company. Talks started in 2013 but Pescott didn’t sign over his business until July 2017. “We knew each other for a long time, and I’d been grooming the business and identifying how to maximise that exit strategy for a long time before we actually did the deal.” Even though Pescott made many millions from the deal, he’s chosen to keep working as the chief executive, and feels more focused than ever. Pescott, 36, says business owners should have an exit strategy from day one. “Know what it is, write that strategy down, put in place the size of exit you’d want. If it’s NZ$20 million, put NZ$20 million. Start to figure out how you could see that come to fruition,” Pescott says. 28 JUNO |

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He says know who you’re going to sell to. “Is it going to be a competitor? Is it going to be a management buyout? Is it going to be a trade acquisition? You need to have answers to all these questions.” Get your company valued every year, and surround yourself with a trusted team of advisers. Don’t manage the negotiations alone. “Treat the other party with the utmost respect. Align your values, don’t take shortcuts, and don’t do the deal purely for the money.” Be open and honest with your team, Pescott says. They’re a big part of the package you’re selling, and key to its ongoing success. Be squeaky clean with your tax, the banks, and your accounting. Be warned: an acquisition could take years. “Your conversations should be two or three years out, just on the off-chance that it’s going to be a long process.” After your exit, get financial advice on investing your money, Pescott says. – Brenda Ward

Below: Chris Pescott still works as the chief executive of Perceptive, after he sold the business.

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High-flyer Sofia Ambler Heletranz co-owner, The Luxury Network owner another nearly four years for Cathay Pacific.” Ambler was left in New Zealand to manage the business. In a new industry, a new country, and new to owning a company, she faced a steep learning curve – plus the complication of becoming a lifestyle-block farmer. She spent her time helping on the front desk, doing marketing, project managing the building of a new hangar – basically fighting fires – before heading home. Then, exhausted, she’d make dinner for the kids and look after the lambs, chickens, and pigs. “It probably took me three years to understand where I added most value to the business and that it was okay to say no to certain things, or to delegate,” she says. There are now six full-time staff and seven helicopters. John looks after all operational aspects of the business, as well as flying a private jet for a high-net-worth individual. The business caters for wealthy tourists, domestic charters, new luxury packages, Waiheke Vineyard lunches, airport transfers, and filming and photography, like yacht race coverage. A highlight included flying then-US President Barack Obama when he was in New Zealand. Swedish-born Sofia Ambler admits she fell into running a Kiwi business by accident. It was her pilot husband John who was the “aviation geek” looking for a business to buy in New Zealand, so the family could move from Hong Kong and Sweden and he could cut down on commuting. He planned to run the company, while Sofia re-entered the finance industry here.

Above: Sofia Ambler runs Heletranz, an Auckland helicopter charter business, with her husband John.

Two weeks after they bought Auckland helicopter charter business Heletranz, they packed their lives into containers. They brought their three daughters to live on a lifestyle block. Then they hit a snag. “It didn’t take long before we knew that to be able to take Heletranz where John wanted to go with it, we needed to expand the business and buy more aircraft. “We were too scared to give up two incomes, so John went back to Hong Kong and worked for

As if she didn’t have enough to do, Ambler last year bought The Luxury Network, a way for luxury brands to collaborate and share high-net-worth clients. She says she wish she learnt earlier to put in place early the structures you need to grow your business, or you’ll quickly outgrow them. She admits she should have put more time into delegating. “I’d say to other women, don’t beat yourself up, because it’s really easy to feel that you’re not being as good a mum as someone else. You have to realise you can’t be at every assembly at 2pm.” And you shouldn’t be scared of having people around that are better than you. “It makes the product stronger and the brand stronger.” Know your numbers, says Ambler. “I think it gives you so much more confidence as a business owner and as a leader to try to inspire others, by knowing exactly how you’re tracking.” – Brenda Ward SUMMER 2018

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Millennial Magic? Is it easier for millennials to start their own businesses than it was for previous generations? And what are they like in the workforce? Claire Connell finds out the buzz on millennials in business. Experts say New Zealand’s startup scene has really come of age in recent years. Through business accelerators that provide entrepreneurs financial support and encouragement, there’s a viable platform for Kiwis with bright ideas. New Zealand’s startup scene Robbie Paul, chief executive of Ice Angels, says millennials have more entrepreneurial spirit than previous generations because there are more opportunities. The Kiwi culture of entrepreneurship, the investment community to back them, and the supportive environment, are all in their favour, Paul says. There’s also easier access to international investor networks. Graeme Muller, NZTech’s chief executive, says if you walk around places like startup nurturing space Creative HQ or co-working spaces like Generator or BizDojo, “by and large, they would be in their 20s and 30s, not 40s or 50s”. Founders under 30 only Two years ago, First Cut Ventures was set up, specifically to invest in the business ideas of founders aged under 30. Robbie Paul says these young people are closer to innovation, they’re less risk-averse, and they’re more efficient with their capital. “If a 40-year-old starts a business and has two kids and a mortgage in Auckland, then there’s a baseline they need to be paid. But if you look at the founders we’ve backed, they can live at home and spend a fraction of that. “When you’re an early-age startup, burning capital and not generating revenue yet, expenses can cost you a lot,” he says.

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Are the stereotypes true? Muller believes negative attitudes against millennials are generational. People don’t tend to look down favourably on a younger generation.

view respect as something you earn, rather than a matter of right. He offers these tips for managing staff if they’re under the age of about 37.

“I’m Gen X, and the exact same conversation was happening when I was entering the workforce, 20-odd years ago. Each generation doesn’t want to stand still, they want to do things fast. “I’m sure when these millennials are CEOs of businesses, they’ll be complaining about that new batch that’s come in and expect all these fancy technologies.” Start a business for the right reason But even if the climate’s made business easier, it’s still best younger people who have an idea for a business start it for the right reason. Paul says: “I don’t think there’s any harm in the sense of urgency that millennials may have, and the desire for autonomy, that drives them to start their own business. But it probably doesn’t do anyone any favours thinking it’ll be an overnight success story or a get-rich-quick scheme, because that’s not the case.” Your own business is hard work, can be risky, and takes time, experts say. You might need to change it up Kevin Whitmore, a business innovation expert at Callaghan Innovation, says young people with a business idea need to be open to change. “Too many times, people come straight to a solution, and then retrospectively try to apply a problem. But people need to think through the problem first, to make sure they don’t jump to a solution that nobody needs.” He often sees people come into startup accelerators with an idea, then leave with a revised, or completely new, concept. “It’s about learning, developing and pushing forward with a concept that takes them through to delivering a sample product.” 32 JUNO |

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They’re open to challenging the status quo, as well as challenging their manager. This can sometimes be misinterpreted as not respecting hierarchy, Brown says, but millennials

• Give them regular feedback, but expect them to move on in a year or two. • Give clear role expectations. Make sure they know they won’t be the general manager within a year, but give them a pathway for moving up within the company. • Allow flexible working conditions where possible. • Challenge them with other options. If they want to step up, get them working on side projects to broaden their skill set. • Pair them up with an older, experienced mentor. This will bring benefits to both parties in terms of understanding between generations.

What about Gen Z?

and go straight into the workforce.

Resilience, creativity, and critical thinking are some of the skills vital to an entrepreneur. And teenagers today are developing these skills, along with innovation and curiosity, paired with no fear of failure, says the head of the country’s Young Enterprise Scheme (YES), Dr Colin Kennedy.

“They’re big multi-taskers and they’re very competitive. The current entrepreneurial mindset and ecosystem suit them better than it did the millennials.”

How to manage millennials best Millennials generally pick up things fast, they’re adaptable, and comfortable working in a fast-paced environment, says Madison Recruitment’s general manager Christian Brown.

YES has been teaching Kiwi secondary students all aspects of creating a business for nearly 40 years. These Gen Z students – one generation below millennials – are “true digital natives”, Kennedy says. “They see things differently… A lot of them are going to bypass education

He sees many technology-based businesses coming through the YES programme. One growth area is ‘drop shipping’, where a company promotes an item from a store like Amazon, and gets commission from sales. Other recent projects have included technology to track and activate a car key (great for parents), and using recycled laptop lithium batteries to power electric bikes.

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‘Young Guns With Old-school Values’ Blair James, 30 James Group real estate director

At James Group, the average age of the 27 staff members is 26 years old. That’s not surprising really, given Blair James, the ambitious director, set up the company when he was 24. James has no regrets about making the ‘big leap’. When it comes to millennials, it’s important new hires have ambition and are full of ideas, he says. In return for their enthusiasm and hard work, they can work remotely and have flexible hours. Everything at their fingertips “Millennials want everything, and we want it now,” James says. “That’s one of the downsides of technology. Because everything is at our fingertips, we expect that with our careers. And we expect to be leapfrogging to the top positions or earning six-figure salaries immediately. “But work has got to come before the play.” Self-awareness is an important quality, he explains. “Millennials might be driven but not self-aware that their path towards growth or success is going to leave a trail of destruction, because they aren’t considering other people. “It’s really important that they have the drive, but it needs to be harnessed, or complemented by those other values.” New ways to bring in experience Despite a lack of experience among its young staff members, the company brings in experience in other ways. James’ father Warwick, who has over 35 years of industry experience, is a consultant. Like-minded property professionals are always willing to give up their time in support of this emerging business. “It doesn’t all have to be under the same roof,” James says – there are other ways to bring in that industry experience.

Technology makes business easier James’ team are “young guns with old-school values”. He doesn’t believe millennials have any more entrepreneurial spirit than previous generations. “But the avenues and the opportunities that exist in today’s world with technology and innovation – and even our communication channels – make it so much easier to realise those business ideas.” And even if you’re short on money to fund your idea, there’s technology for that too – try crowdfunding platforms. While the company’s human resources team interviews and looks at applicants from across the board, James says millennials have so far been a better fit with the company’s culture. “The dynamic is really important – there are lots of people going through the same life stage. There’s not a lot of previous work experience, so there are not a lot of egos in the room and bad habits to undo. They’re just keen to go out there and smash it.” SUMMER 2018

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The Five-dollar Solution Sonya Williams, 30 Sharesies co-founder

In 2016, the media was largely filled with stories of unattainable homeownership and avocado on toast. Baby boomers and millennials were scrapping over who had it tougher, says Sharesies co-founder Sonya Williams. She could see there was a problem, and how it could be solved. She realised that people who couldn’t afford to buy houses were also priced out of investing. The minimum buy-in was high, they were “jargonedout” because of the complex language, and “branded-out”, because they didn’t fit the mould of the typical Kiwi investor – over-60 and male. “We thought, how could we do something that was a bit more empowering and inspiring for people who were out of the property market? “What’s another way to grow your wealth that doesn’t mean you have to save up heaps of money for a deposit – something that’s a bit more accessible.” Millennial business Sonya, along with six co-founders, decided to launch an online platform where you could start investing with just NZ$5, and Sharesies was set up in late 2016. Williams looks back at all the work of the startup. “I wouldn’t say as a blanket thing that starting your own business is a good thing to do – it’s an awesome experience but it’s hard work. It’s more [about] have you done the work? And you feel comfortable that starting a business is the right thing for you.” One year on, around 80 per cent of Sharesies’ 22,000 investors are under 40, there’s almost a 34 JUNO |

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50-50 gender split, and they’ve got NZ$23 million invested. The founders were young to be starting a business, but Williams says entrepreneurial spirit isn’t necessarily connected to age. It’s about mindset “I think it’s a factor, but it’s definitely more about mindset. Age just doesn’t have a monopoly on this type of thinking. “I love that we are really sharing this opportunity to grow wealth with so many people. “I hope it fundamentally changes the way people see money in the future.” Williams has a tip for other fledgling business stars. The key to entrepreneurship is falling in love with a problem, not falling in love with an idea for a business, she says. If you do that, you’ll never run out of ideas.

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what needs immediate attention. That can mean losing sight of the bigger picture or long-term goals.

Could a Board Help Grow your Business? Is your business missing out on fresh ideas and viewpoints? One answer could be appointing a board of directors, says Kirsten Patterson, chief executive of the Institute of Directors. Building a business is often a labour of love. If you’ve slogged away for years to build up a successful enterprise, the thought of letting other people have a say in what goes on can be daunting.

Every company listed on the share market must have a board of directors. Some private companies and non-profit organisations also have them.

But opening up to the new ideas, viewpoints, and expertise of a board of directors could be an important step in driving your business forward.

If you’re running a small business and are looking to grow, move into new markets or products, it might be time to look at bringing in some external skills and experience.

A board is a group of advisers to a company who set policies, oversee the managers, and help make decisions on major company issues. 36 JUNO |

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Look at the bigger picture

A common problem for business owners is getting caught up in day-to-day tasks and

A board gives perspective, allowing you to work ‘on’ the business, rather than ‘in’ the business. They can provide a fresh perspective and look at the business through a long-term lens. They can also help set, or reset, the vision and strategy for your business, assess potential future challenges and opportunities, set performance goals and objectives, and make sure the company’s financial and legal obligations are being met. Trusted advisers or a formal board? If you’re considering appointing a board, there are a couple of different routes you can take. An advisory board could be ideal if you’re after people to bounce ideas off and provide valuable business strategic insights. An advisory board has no legal obligations or control over the business. They can offer advice, but have no authority to make decisions.

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Or you could appoint a formal board of directors, who all have legal responsibilities and obligations. Directors are appointed by shareholders and are legally required to act in the best interests of the company. It’s important to get the right people, who not only have the right skills, but the time and ability to commit to the role. You don’t have to look far in the media to see the potential consequences of directors failing in their duties. Different types of directors ••

••

Executive directors. An executive director is an employee of the company. They bring an insider’s perspective of the operational side of the business to the board table, but it’s important that they maintain a degree of separation between their board role and their day job. Non-executive directors. A nonexecutive director brings an external perspective to the board table and will sometimes represent a major shareholder. Independent directors. Apart from a seat at the board table, independent directors have no other affiliations with the business or shareholders.

What are you looking for? Ideally, your board will be made up of people who bring a diversity of skills, thinking and experience to the table. A broad variety of opinions, perspectives, and backgrounds can lead to innovation and fresh thinking. A range of expertise is also important to cover off the board’s important strategic, legal, financial, and regulatory obligations. How do you become a director?

fees for non-executive directors was NZ$45,000. This median figure includes directorships at large New Zealand Stock Exchange-listed companies, which pay a lot more than a smaller business would. Organisations with revenue of up to NZ$5 million pay directors a median of NZ$13,000 a year. Organisations with revenue of between NZ$5.1 million and NZ$10 million pay a median of NZ$24,000 a year. Not all directors are paid.

Directors will often have a successful corporate or business background and are keen to share their skills, networks, and expertise.

Appointing directors

When looking to make appointments, boards consider a variety of factors, including a proven track record in business, a good reputation, a diversity of skills, and an ability to contribute strongly in the boardroom.

Tap into your network for recommendations and try to meet as many people as possible – a recruiter could help with this.

How much do directors earn? The amount directors earn is often a hot topic. The amounts vary depending on, for example, how large a company is, what sector it’s in, or if it’s a not-for-profit. Our 2018 survey found that the median

Don’t fall into the trap of simply appointing people you know to your board.

Write down a description of the skills, experiences and personal characteristics you’re after. Spell out what the main duties and purpose of the role will be, how long the appointment will be for, what the pay will be and how much of a time commitment you expect. SUMMER 2018

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The Sky is Not the Limit Rocket Lab founder Peter Beck says a successful board of directors should push a CEO to think big. He asks why people would aim for a million-dollar business when they could build a billion-dollar one. Kate Geenty investigates.

Rocket Lab founder Peter Beck remembers the reaction he got when he told people he wanted to build a billion-dollar company and build rockets. “I got scepticism about the rockets bit. It’s fair enough that that can sound absurd, but it shouldn’t sound absurd that you want to build a billion-dollar company,” he says. “That should just be seen as standard. But in New Zealand, it’s not standard. “If you’re standing out there saying you want to build a billion-dollar company, then you’re kind of weird.” Beck may have once seemed weird, but now the Invercargill-born engineer has turned his childhood dreams of conquering space into a commercially viable, multinational rocket company, he’s being taken seriously. His number one message to businesses and boards is to think big and go big. “I think this is one of the things where New Zealand lets itself down, both from a company perspective, but also in the boardroom. “Where are the board members who are pushing the chief executives to think much bigger? In New Zealand, we get to a certain size and then it just sort of stops. It just blows my mind.” Merely looking to dominate the local market, or to cross the Tasman, doesn’t cut it for Beck. 38 JUNO |

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“The definition of success seems to be ‘We’re selling in Australia now’. That’s the definition of failure. “We’re only selling in Australia now, why aren’t we selling in the UK and Europe, and actually, take it a step further and why aren’t we the most dominant in that particular industry in the entire world? “As a board, those are the questions that really should be asked of senior leadership… I won’t go on the board of any company unless they show me a roadmap towards a billion-dollar company.” No one could accuse Beck of thinking small. Rocket Lab is able to put a satellite in space using roughly the same amount of fuel as it takes a jetliner to fly between Los Angeles and San Francisco, and for a fraction of the cost of traditional launches. After completing two successful launches of the Electron rocket from the company’s pad in Mahia Peninsula in May 2017 and January 2018, Beck says flights are now fully commercial. The company has a backlog of customers, including NASA, commercial satellite providers looking to collect weather or maritime data, internet providers, and companies that provide GPS or earthimaging services to space. Don’t follow the money Despite Beck’s billion-dollar ambitions, he’s focused on people, not money, to get there.

“My biggest goal is that all board members go and sit in the bath, or stand in the shower, and reflect on why they aren’t asking the big questions.”

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This article was first published in BoardRoom magazine

Left: Peter Beck says boards can really shape the future of Kiwi businesses. Top: The Electron rocket is launched on the Mahia Peninsula.

“For me, it wasn’t about the money, it was about who can grow our business the best. From a board perspective, who can we have on the board to make sure that the business succeeds?” He says Kiwis hoping to follow in Beck’s footsteps need to take a strategic view of what they’re trying to achieve and then work out the best people to help them achieve that. “Get on a plane and get over to Silicon Valley or New York, or the UK, wherever makes the most sense for you, go and get on the ground,” he says.

either come home with a cheque or be run out of town.”

Beck says the US is a country where you can go and do anything.

Beck’s first week in Silicon Valley was spent visiting successful startups. He says being a New Zealander helped.

“But if we want to compare the cleverest ideas, then New Zealand punches above its weight. We’re just not always great at commercialising them.”

“People tended to bend over backwards, because they think you’ve travelled a very, very long way to get there.” Beck left town with a signed investment agreement with Khosla Ventures. Rocket Lab is now headquartered in the US, but maintains a subsidiary and launch pad in New Zealand.

That’s exactly what Beck did back in 2013.

Attitude and vision

“I decided we were going to do the Electron programme, woke up one morning, jumped on a plane and went to America. I gave myself three weeks to

Beck says in the US, it’s okay to fail. In fact, it’s almost expected that a successful chief executive will have at least one failure under their belt.

He believes boards can help turn that around, and create world-leading businesses. “My biggest goal is that all board members go and sit in the bath, or stand in the shower, and reflect on why they aren’t asking the big questions. “As board members, are we just sitting here to be comfortable and worried about the P&L (profit and loss) this month? Or are we actually... really talking strategy and really setting a vision for the founders or senior managers about how we can truly be the biggest and the best at this in the world?” SUMMER 2018

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KiwiSaver: A Guide for the Boss If you own a business, it’s best to think about KiwiSaver in two ways – as an employer, and as a member yourself, says Paul Gregory, of Pie Funds.

If you work for yourself, you may have enrolled in KiwiSaver to save for your retirement. But if you employ staff, it’s good to make sure you’re also doing the right thing for the people who work for you.

for bosses with its online KiwiSaver employer guide.

Under the law, employers must: •• Make KiwiSaver available to any staff who want to join it. •• Arrange salary deductions for new employees who are KiwiSaver members. •• Make employer contributions of at least 3 per cent for employees who are KiwiSaver members.

With KiwiSaver, you have the chance to do some really good things for your staff.

Employers can’t ignore KiwiSaver, even if they offer a registered superannuation scheme and have an exemption from the Financial Markets Authority. Being exempt just means you don’t have to automatically enrol new employees in KiwiSaver. One-stop guide The Inland Revenue Department has made it simple

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But if you’re thinking about KiwiSaver for your employees just as admin, you’re looking at it the wrong way.

A KiwiSaver account will probably be your workers’ largest investment other than if they own their own home. It gives them the chance to make a better future, by delaying spending today to save for tomorrow. You can make a difference KiwiSaver is also a chance to boost your team’s broader financial education, and make their lives better. You could start conversations about money, budgeting, avoiding scams, and how to use financial products and services to get ahead in life.

PERSONAL FINANCE

Research shows employees worried about money will be more stressed, less productive, and more likely to be sick or absent. Get them savvy about saving Lots of financial services companies, like banks, have information and tools available to help your employees better manage their money. Some of them might even come to speak to your team in person. Why? To be honest, it’s sometimes because they might get new members out of it. But it’s also because the government is demanding that financial organisations engage and inform their customers, as well as profit from them. And that’s a good thing. Government agencies like the Financial Markets Authority (FMA) and the Commission for Financial Capability (CFFC) are also happy to provide information – and in CFFC’s case, do training programmes – to build your employees’ financial capability. It’s an important part of their job, because they know there’s a big link between improving Kiwis’ financial capability and helping New Zealand grow, both socially and economically. These organisations can help educate your employees about their financial future, but they don’t have what you have. You have direct contact with your people every day and, what’s more, they trust you. You’re the key to it all. In fact, KiwiSaver providers find that members who are part of ‘preferred provider’ arrangements with their employers are far more engaged than members who come to them directly. That’s thanks to bosses who get involved. Help them be smarter with money Good employers see financial capability as part of their employees’ overall skill-base and they can see how it reduces stress – at least as much as free flu jabs and yoga sessions. Big employers with human resources departments probably have the money and people to do most of this themselves. But if you’re a small employer, there are still plenty of free resources: •• There are online tools such as Sorted’s Fund Finder, or the FMA’s KiwiSaver Tracker. •• Some KiwiSaver providers have good educational material on their websites. •• You can also get direct help from the workplace programmes offered by the CFFC. Encouraging your employees to join KiwiSaver, and giving them the tools to do so, can really bring big benefits later in life.

What if you’re a contractor? If you’re self-employed, it might be easy to put KiwiSaver in the ‘too hard’ basket. You’re not prompted to sign up by your employer, so you need to contact a provider yourself to become a member. Yes, your income might be uncertain, and your cash flow might be unpredictable. Putting away money regularly might feel uncomfortable. But your future, postwork, you will thank you for the discipline you showed. First, as with anyone else, don’t contribute to KiwiSaver at the expense

of your mortgage or feeding yourself and your family. But you only need to contribute NZ$20 a week to get the full NZ$521 annual government contribution. An automatic payment is probably the easiest way to do it, and your provider will help you with this. Keeping that sporadic cash flow in mind, you might prefer a lump sum contribution: put in at least NZ$1,043 (that NZ$20 a week in one hit) to get the government contribution. Even if you can’t put in that much, the government will match what you do put in.

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PERSONAL FINANCE

Exit This Way There’s no point building a successful business if you can never leave it. Amy Hamilton Chadwick asks the experts how best to cash up your firm and walk away with your head held high.

If you’ve spent years building up a successful business, you’ll be hoping you get the chance to reap the rewards at some point. You’ll want to step back, cash up, and enjoy either a comfortable retirement, or the freedom to take on a fresh challenge. But how do you find someone to take over the reins? There are several ways to pass your business on. Family buy-in Often the first place a business owner looks is to a family member. This can work if your relative is passionate about the business and skilled – and if you help them make the leap to ownership. Mark Carley, chief executive of HirePlants, took over the company after his father died. He suddenly had to make important decisions about a business he knew almost nothing about. There was never any plan, or even a conversation. “It was a huge burden to have to pick up the pieces.” Five years on, Carley has grown HirePlants’ revenue by a factor of five, but says he certainly won’t be pushing his children into taking over. Carley has plans to make sure the business will run by itself if something happens to him, and he’s considering a long-term exit strategy for the future.

“It can work because the owner gets to know the business is in good hands and get some of their money in instalments – and a young owner can buy a valuable business on a payment plan.” Look outside For most businesses, finding an outside buyer is the best exit strategy. The process of matching a buyer with the right business is a bit like matchmaking. A good broker can help you make your company attractive to prospective purchasers. Whether a company sells is 80 per cent dependent on the financials, says Suneil Connor, chief financial officer of LINK business brokerage. “The other 20 per cent includes, among other things, a growth plan for the new owner, how the key employees are incentivised, and the lease terms.” It’s difficult to put an exact value on a business, but calculations are often based on a multiple of EBITDA, which is earnings before interest, tax, depreciation and amortisation. Add value to your business Business owners tend to overvalue their company and expect buyers to automatically see what a fantastic prospect it is.

Employee takeover

“Personal goodwill is worth absolutely nothing – we try to move that into business goodwill,” says Connor.

You can look within your business for a new owner. Key employees know how the business runs and you can work together to gradually step them up into the ownership role.

“Get everything you know written down, and create systems for running your business. The easier it is for a 20-year-old to step in and run the company, the easier it will be to sell.”

In many cases, a major hurdle is getting the money to buy the business. This is where vendor finance might be an option, says Geoff Hamilton, chartered accountant and succession planning specialist at SME Financial.

Creating a succession plan means thinking about potential buyers, structuring your business to improve its value, and improving its financials.

“Instead of getting one lump sum for the business, the owner is paid gradually in shareholder dividends or with part of the new owner’s salary,” he says.

“He improved his cash flow and reduced his own involvement so much that suddenly he wanted to keep it.”

Tips for succession planning • Talk to your accountant and a business broker well before you intend to sell. Both can help you make changes that will improve your company’s value, giving those changes time to kick in before you look for a buyer. • Identify your goals for exiting the business. • Lock in key employees, whether as part-owners, or with incentives. • Have a plan for future growth that the new owner can use as inspiration or guidance. • Improve the company’s financial statements. • Look around for possible successors and buyers. Be open-minded – it could be a competitor.

“One of my clients made a succession plan to sell,” says Hamilton.

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YO U R I N V E S T I N G

The Million Dollar Question How to Diversify with Your Lump Sum What should you do with the money you make from selling a business or cashing in your super? After you’ve spent years building a lump sum, investing is the natural next step, says Martin Hawes.

So, you’ve done well. You’ve sold the business, or you’ve cashed in your superannuation savings. Now you find yourself in the fantastic position of going into retirement with a mortgage-free house, and maybe up to NZ$1 million in the bank. You maybe thought that if you could get yourself into that position, you could go off into retirement without a care in the world. But what should you do with the money? It’s certainly true that for most people NZ$1 million to fund retirement is a huge amount. In fact, most Kiwi retirees have a lot less. So how can you manage what you’ve got? You need an income You need to find a way to turn this money into a steady and reliable income. Most people have had a life of taking a pay cheque every second Thursday or have been drawing regular profits from their business.

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You may have had to budget and juggle, but your income for the most part might have been solid and reasonably dependable. On retirement, however, you will need to invest a lump sum to try to duplicate that previous income. In a low-interest rate environment with risk aplenty and markets volatile, that’s not easy. In fact, turning a lump sum of cash into a steady income to live on is the hardest thing in all of finance. Mistakes could be costly Not only is investment for retirement income difficult, the stakes are higher. Retirees who make a major investment mistake don’t have time to rectify things and make up for their mistakes. There are plenty of examples of people whose retirement dreams have turned to mush. The cardinal rule of investing for retirement

income is to diversify. This means that the investor needs to own some of all the major asset classes: shares, listed property, fixed interest investments, and some bank deposits. To have all your money in just one asset class could be dangerous. In the past, many retirees simply had bank deposits or, perhaps, a rental property. Exposure to just one type of investment means that your future income is entirely reliant on that one thing doing well. But all investment types are at risk of failing or produce lower-than-expected returns. You might be retired for a long time Retirement is now likely to be for a long time – 20 or 30 years, and maybe more. Within that time there are likely to be any number of economic events, such as inflation or a recession. Your job is to invest in such a way that you can survive anything that the global

PERSONAL FINANCE

economy may throw at you and come through smiling, with income still flowing. Depending on the economic climate, some investments might do well, and some might suffer. For example, property usually does well in times of inflation, but fixed-interest investments are best in times of deflation. Shares usually do well in booms, but cash is king in busts. Look offshore too One of the risks that all investors face is some terrible, New Zealand-only event. This could be anything like a natural disaster, a bio-security breach, or a problem with a major industry, like tourism. New Zealand could end up in economic trouble while the rest of the world is doing well. Investments offshore would be a godsend in those circumstances. Holding some of every type of investment will allow you to get through whatever storms the economic weather throws at you.

Regardless of what happens, something in the portfolio will be a very useful asset to hold and should be doing well. Even the banks are vulnerable This isn’t the case with just one asset type. Even those most traditional go-to assets of retirement income, bank deposits, are vulnerable to banking failure, and, of course, they give lower returns. Having some bank deposits is useful because they are safe and ‘liquid’, meaning you can get your money out fairly easily. But that doesn’t make them worthy of being your sole asset. Every asset class has its pros and cons, and there’s no investment type which performs well in all seasons. You need a bit of everything. Forget any idea of a single-asset strategy. In retirement, you need to keep your money safe and the way to do that is diversification.

Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme’s product disclosure statement and further information about the Scheme at www.summer.co.nz. Martin is an Authorised Financial Adviser and a Disclosure Statement is available from Martin Hawes on request and free of charge at www.martinhawes.com

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YO U R I N V E S T I N G

Love it or Lose it Going into business with your partner may be a good idea, or it could be a disaster. Family lawyer Jeremy Sutton explains how to avoid a messy business break-up.

Your life partner just may be your perfect business partner. You know them inside out and there’s a high level of trust between you, personally and professionally. As a couple, you can structure the business the way it works for both of you. Sharing a dream and pursuing a goal can be a deeply rewarding part of your lives together. But there are downsides. If you end up separating, your work and home life are both thrown into upheaval. What happens if you separate? If you’ve been married or have lived together for three years or more, then the business becomes part of your relationship property. This includes assets, as well as debt. If you separate, you’re both entitled to an equal share. But how do you divide a business? There are three options people usually take: 1. Sell the business and split the proceeds You might decide to sell if neither of you has the capital to run the business on your own, or you don’t want the responsibility. It takes time to sell a business, so you may have to keep working together for a while. 2. One partner buys the other out This is what usually happens, as people don’t want to be working together after they separate. You can agree on a value for the business yourselves, or use an independent valuer. The spouse who doesn’t end up with the business will receive a greater share of the

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relationship property. That person may also be paid income support by their partner until they’re back on their feet. 3. Remain joint owners of the business This is possible, if you’re both really committed to making it work. Before deciding, talk through your expectations, from responsibilities down to the day-today running. Anything you can agree on up front will help to ease friction down the track. Even if you both start with the best of intentions, goodwill towards your former partner can change over time. Work challenges can arise, and people might move on and start dating again. If it all goes downhill, you might find yourselves back at your lawyers for a second time, settling the ownership of the business.

In fact, you could have done this when you settled the rest of your relationship property and moved on, saving time, money and stress. What should you consider? Going into business is a big commitment. It’s a good time to make sure your financial affairs are up to date, so you and your loved ones are protected. If one partner contributes more money to the business upfront, and they want to get that money back at the end, they might want to have a Contracting Out Agreement (COA), or prenup, drawn up. A COA specifies what each person would receive in a separation, rather than sharing the relationship property equally. For example, you could specify that one partner would receive an initial cash

contribution back, before the remaining assets are halved.

to make sure you’re both protected during hard times.

Or you might want a different proportion of ownership, say, 60 to 40.

Should you run a business together?

For a COA to be enforced in court, both parties need to have received independent legal advice before they signed. Update your wills Wills should also be up to date before you go into business. Are you the sole beneficiary of each other’s wills? If there’s another beneficiary, for example a child from a previous relationship, they might end up owning their parent’s share of the business. That could be awkward, so make sure your will reflects your wishes. At the same time, review your insurances,

Many couples run successful businesses together. If you think it’ll suit you, go for it. But if things are at all rocky or uncertain between you and your partner, you might be wise to keep your work and home lives separate. You need to get on like a house on fire, not a house where you’re always putting fires out. My experience as a family lawyer has shown that often it’s better to stop working together when you split, and make a clean break. That way, all your relationship property gets settled at one time, and you can both move forward with your new lives.

You need to get on like a house on fire, not a house where you’re always putting fires out. Definitions Relationship property: Relationship property is the property, or assets, that must be distributed between a couple when the relationship ends. Contracting Out Agreement (COA) or prenuptial agreement: An agreement made by a couple concerning the ownership of their assets if the relationship fails.

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ADVERTORIAL

5 Mistakes to Avoid in Business PwC private business partner Damian Tuck sees a lot of companies fail by making basic mistakes. He lists his top five.

1. Not asking for help until it’s too late

3. Poor records

Owning your own business can be a lonely place. You don’t have the luxury of having lots of people you can bounce ideas off, yet all too often we see entrepreneurs who are not prepared to seek advice until it’s too late. Not asking for help or not surrounding yourself with advisers or a network of people to share ideas and challenges with can be a big contributor to businesses not reaching their full potential, or even failing. The key message here is, don’t go it alone.

Documenting your financial records and understanding the true state of your business at any time is critical. It’s important to know how your business is performing so that you can track progress against your goals, and make informed decisions before it’s too late. However, we see many people scrambling to get their records in a good state to be in a position to understand how their business is performing. Utilising technology for managing documents and your accounting records is essential. There are so many fantastic tools available for SMEs now.

2. The lack of a well thought out business plan We see many entrepreneurs come up with great ideas, but it’s a real shame when you find that they haven’t thought about how they’ll execute them and, as a consequence, fail. Investing in a business plan that includes financial forecasts, pricing, distribution and sales strategy is critical if you want your business to succeed.

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4. Not enough capital or cash reserves Cash is king. It’s an old cliché but a very important one to focus on when running a business. Firstly, you need enough cash to start with. Secondly, when you are up and running you need to convert inventory, work-in-progress, and debtors into cash as

ADVERTORIAL

quickly as possible to fund growth. We see a lot of businesses puffing as they struggle with the cash conversion cycle, or don’t put enough emphasis on it. 5. Poor leadership and not investing in people Underinvesting in people is a big mistake. Not only do you want great people working for you, you want them to be highly motivated if you want to reach your lofty goals. We see many businesses underperform or fail because they don’t have the right people managing their business. Investing in people, teams, and high performance is a big part of success.

Underinvesting in people is a big mistake. Not only do you want great people working for you, you want them to be highly motivated.

Want to grow? How PwC can help At PwC, we work with a vast number of small to medium-sized businesses. We are well equipped to leverage off our experiences and advise private businesses on reaching their goals. We are now working more closely and regularly with our clients preparing monthly management reports, business plans, conducting strategic reviews, performing market analysis, assisting with forecasting, and helping get products to market. At PwC, we’re not just accountants, we’re also business advisers. PwC isn’t just for big corporations. We work with a wide range of businesses from very small ones all the way through to large, iconic family-owned businesses. You’d be surprised to see the mix of businesses we have as clients, with many not fitting the perceived ‘PwC client’ profile. However, there is one common denominator – our clients are ambitious, and they want to grow.

Do you have provisional tax to pay? PwC tax pooling solutions can remove the stress with a full suite of online services for any New Zealand tax payer.

Matt Rama E: matthew.g.rama@pwc.com M: +64 21 984 929 pwc.co.nz/taxpooling

© 2018 PricewaterhouseCoopers New Zealand. All rights reserved. PwC refers to the New Zealand member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

YO U R I N V E S T I N G

Central banks around the world feared that if money flow froze, economies would slide into another global depression. So, the US Federal Reserve started quantitative easing (QE), which basically means it was printing money and using it to buy its own government bonds. This increased the demand for US bonds, pushing up their price and reducing the yields.

Are Bonds Still the Right Choice? Bonds used to be a safe haven. But Jack Powell, of Private Wealth Advisers, suggests you check if theyâ&#x20AC;&#x2122;re still the best place for your money.

Over the past decade, weâ&#x20AC;&#x2122;ve seen local interest rates drop to record-low levels. This has been a great environment for investors whoâ&#x20AC;&#x2122;d been holding bonds for a long time. Just think back to 2006-07, when you could get a goodquality bond paying more than 8 per cent interest. If you go back over the past 5,000 years, the only other time interest rates were this low was in the 1930s during the Great Depression.

This, in turn, pushed borrowing costs lower, meaning people and companies could afford to borrow more money. This process went on until mid-2014. In 2010, the Bank of England started a smaller version of QE, followed by the Bank of Japan in 2012 and the European Central Bank in March 2015. So, we now had US$15 trillion worth of QE pumped into global bond markets across all four central banks. This led to some record-high bond prices and record-low interest rates. Some European bonds are still offering investors a negative yield (return to maturity). This has dramatically increased the risks to people holding long-dated bonds. What are returns now? See below the net real return that an investor could get now by investing into a one-year bank term deposit, versus a one-year bond with a similar credit rating (Figure 1).

Why central banks printed money

We use this as a comparison because they both have the same term to maturity, and a similar risk. The only difference is that one is a term deposit and the other is a bond.

In the Global Financial Crisis (GFC) of 2008, share markets were falling and bank credit was freezing up.

The term deposit will provide a net real return (after tax and inflation) of 0.86 per cent, versus the bond at -0.94 per cent.

Figure 1. Bank Term Deposit Versus Bond

BNZ Term Deposit

Auckland Council Bond

(Rating: AA-, matured 02/10/2019)

(Rating: AA, matured 02/10/2019)

Gross yield

3.52%

2.12%

Gross coupon

3.52%

4.73%

Less tax*

-1.16%

-1.56%

Less inflation

-1.50%

Net real return

0.86%

-0.94%

Source: PWA, 2 October 2018. Assumed tax 33 per cent 50 JUNO |

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How do rising interest rates affect bonds? Bonds with a fixed interest rate, known as a ‘coupon’, are affected by changes in the market interest rates. For example, if you owned a bond with a 3 per cent interest rate, and the underlying market interest rate rises to 5 per cent, your bond becomes less attractive, and its price will go down. The reverse happens if interest rates move lower – the bond value increases. The length of time until the bond matures also affects the price. The longer before it matures, the more sensitive the bond will be to interest-rate movements on its price. For example, a 10-year bond could lose up to 10 per cent of the original purchase price if the underlying 10-year yield moved up just 1 per cent from when the bond was purchased. Why does this matter? On 31 August, the Bloomberg Barclays Global Aggregate Bond index had just over 22,400 bonds globally, with a duration (average maturity of all the bonds) of seven years. Gross yield was just 2.55 per cent a year. Not much of a return After allowing for tax, hedging, fund manager costs, adviser fees, and inflation, New Zealand investors might be very surprised at how little’s left over for them in returns. If global interest rates fall from their (already very low) current levels, an international bond fund like this might see a capital increase. But if global interest rates rise instead, the fund could suffer a capital loss. Now’s a good time to review the income part of your portfolio to confirm what the average yield (return to maturity), credit rating, and duration (term to maturity) is. If you believe interest rates could rise, then you will want to have a very short duration. In most cases you might find term deposits a better option but, at the very least, you should know what your hard-earned money is invested in.

Definitions Bond: A bond is a fixed-income investment where an investor loans money to a body (typically councils or the government) for a time frame for an interest rate. Bond yield: Yield is the money you make when a bond has reached maturity. It includes the price you paid for the bond, and the interest rate you receive. Hedging: Hedging is an action where the fund manager removes the risk of an impact on performance from the NZ dollar movement in value against other currencies. Quantitative easing: A monetary policy used by central banks and governments to stimulate their economy, often through the purchase of government bonds and increase in the supply of money. Term deposit: This is a fixed-term deposit, held at a bank or similar.

ADVERTORIAL

Do Young People Need Insurance? Naomi Ballantyne asked the younger members of her Partners Life team about insurance if you’re under 35.

There’s a common perception in New Zealand that insuring yourself is only really relevant once you have a home and kids. But what about young professionals and entrepreneurs under the age of 35? They’re among the least-insured groups of Kiwis, possibly because they feel that they don’t have anything to protect.

“Being independent gives me wonderful freedom – but it also means that if you can’t take care of yourself, you’re much more vulnerable.

very limited in the range of problems it can cover, leaving gaps and uncertainty. Insurances like income protection can help to close those gaps.”

“To me, it’s most important to have insurance as a young person, during that time when you have to be your own safety net.”

Gerhard, 27, marketing co-ordinator

But is this really the case? We should absolutely question this conventional logic.

Min, 27, senior policy servicing specialist

I decided to kick-start this process by asking the young professionals in my own business what they have to protect, and why insurance is important to them. Here’s what they said:

“Health and life insurance for a young New Zealander is a bit of a foreign concept. Growing up in a country that provides free healthcare for under-13s, free dental care for under-18s, and then ACC, it’s hard to place value on insurance – until you need it.

Travis, 30, underwriting manager “I think that generally people are doing things at older ages now – gone are the days when people are married with a house and kids by 23. Younger people are now much more independent and self-reliant.

“It’s lulled young New Zealanders into a false sense of security. There’s a widespread misconception that ACC will financially save us from health mishaps. “ACC does help a lot of people, but it’s also

“I think it’s important to understand from an early age that, unfortunately, we’re not bullet-proof. Even though the risk financially to me might be less than someone older, it will still have a significant impact. “I want stability, so if something goes wrong, I’m able to sustain my preferred lifestyle for long enough. If you don’t have any cover in place, your ability to keep living your current life and get back on track might be limited – whether that’s buying a house, starting a family or even studying. “Insurances such as disability and trauma covers could sustain your income while you are unable to earn it yourself.”

Sine, 27, underwriter “The best time to buy insurance is before you need it. Almost all insurance premiums are affected by age and health. “It makes sense to me to lock in my youthful good health now. “The insurance company will accept you based on your health to date, and then anything new that happens to your health after that, the insurance company can help carry that ‘baggage’ for you.” Kris, 28, general manager marketing and product “Every single New Zealander who owns an asset, has liabilities, or is earning an income has financial risks and insurance needs. “Young people in New Zealand understand the concept of insurance – after all, we insure our cars and contents. But very few of us understand that our biggest asset as a

young, working person is our ability to earn an income.

medical insurances could provide the protection they need.

“Prior to 35, you’re unlikely to have reached anywhere near to your earnings potential.

Protecting against an interruption in income-earning ability while you’re young and healthy means future deteriorations in health likely won’t affect your premiums or cover.

“An interruption to your ability to earn an income today would not only leave you with an immediate cash deficit, but also jeopardises your career and financial goals. “If nothing else, you should at least seek advice to understand what your financial risks are, and how an interruption to your life today can affect your future income.” Common theme with all answers As you can see, the answers are as varied as the people quoted, but there is a common thread. Yes, young people do have plenty to protect: their health, independence, current lifestyle, and their potential future lifestyle. While life insurance might not be needed, trauma, income, lifestyle expenses, and

You can maintain your independence if you have a health event, so you won’t need to move back in with your parents. Your current lifestyle can be supported even if ACC doesn’t come to the party, and you won’t have to defer your future potential lifestyle because of an unexpected health event. So, if you’re young, if you love someone who is young, or employ someone who is young, make sure they get expert advice about their life and health insurance needs. They can find out what’s available, and what might be suitable for them.

YO U R I N V E S T I N G

Business Vision Kiwi companies are coming up with some innovative solutions. We showcase companies that are working smarter to bring you business that inspires.

Insurance in a Tap Kiwis can now use Facebook Messenger to get quotes, buy, and manage their insurance policies. The initiative is the brainchild of Auckland-based technology startup Cove, which launched this year. Customers manage their policies using a chatbot through Facebook Messenger. But there’s still the opportunity to speak to a real person if you need more help. You can also buy insurance for individual items, like phones. Individual laptop and camera insurance will come in the future. “We’ve found that many people don’t want to insure every single thing they own, from their laptops right down to their bedding and shoes, as is the case with a traditional contents insurance policy,” says chief product officer Rob Coon. “Many people just want to insure the one or two products they value most.” Customers pay for Cove insurance on a monthly subscription, like Netflix or Spotify.

Craig Piggott, founder of Halter

Training Cows all in a Day’s Work Imagine a dairy farm without fences, where the cows are trained and wear collars like a Fitbit. Sounds crazy, doesn’t it? But that’s exactly what entrepreneur Craig Piggott has designed through his company, Halter. Piggott’s created a device that trains cows to respond to audio and vibrational cues. It sounds nuts, he agrees, but he’s successfully trained all the cows at a test farm in Morrinsville. Most cows can be trained in an hour. Using artificial intelligence, modelling patterns and data collection, the collar detects if an animal is sick, lost, or fertile, and sends alerts. Using technology, the farmer can remotely move cows to where they need to be, without having to leave the couch.

NZ$8 million from Silicon Valley investors in the US, to get the company off the ground. The idea for Halter was based on logic. Piggott simply thought, “There has to be a better way than walking behind cows for hours.” But how are farmers responding to the new technology, which will be out in 2019? With farmers likely not keen to be told to remove all their fences, the Halter team had to come up with another approach. Instead, the farmer leaves gates open, and the technology works within that space. “There will definitely be farmers initially who won’t want to adopt new technology. But, in general, we have had great success. We think it’s the future of dairy farming around the world.”

Piggott grew up on the dairy farm, then became a mechanical engineer. He worked at Rocket Lab, under entrepreneur Peter Beck, who became his mentor. Beck’s an investor in Halter, and also a board member.

Piggott says Halter combats issues around staff shortages, and helps farmers make more money by being able to move stock smoothly and efficiently.

Through these contacts, Piggott was able to raise

halter.co.nz

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Collars come free with the web-based technology, which farmers buy through a subscription service.

“Consumers have shown a strong preference towards companies who offer flexible monthly subscriptions, which can be cancelled or altered at any time,” says Coon. The company’s aim is to make insurance for Kiwis simpler, friendlier, and smarter.

coveinsurance.co.nz

PERSONAL FINANCE

A Feel-good Ticket An innovative social enterprise for event ticketing is heading to New Zealand shores. Using Humanitix, you’ll be able to list your event online, and the company will donate all booking fee profits to the charity you select on its platform. The social enterprise was set up in 2015 by Sydney friends Joshua Ross and Adam McCurdie, who wanted to create a company to give back to those less fortunate.

“Earlier this year, Atlassian Foundation (an Australian software company) pledged AU$1.2 million, so our tech is in great shape. “Pure business for profit is creating some social issues, and I think there needs to be a balance. “Many ethical products cost more, whereas ours doesn’t. Do you want to give your booking fees to US shareholders, or a local non-profit?” Ross says.

The pair’s backgrounds in investment, technology, and engineering gave them the ideal skillset to create a successful tech startup.

The New Zealand launch is planned for early 2019 – and they’re looking for a Kiwi philanthropic partner to work with them to assemble a NZ board and network, select local charities, and seed funding.

Since launching, they’ve ticketed thousands of Australian events.

Ross believes the platform will do well on this side of the ditch.

And their efforts have been rewarded – Humanitix just won the Google.org Australia Impact Challenge, meaning they collect AU$1 million in prize money, plus tech and marketing support.

“We keep getting told that Kiwis are arguably more socially conscious than Australians when they consume, and this was supported by some trial events we’ve run in NZ the past few months, so we are excited.”

Ross says the win is very exciting for the social enterprise.

humanitix.com

Perk up Your Day Feeling sluggish mid-afternoon? A new coffee blend could help boost your brain function to get you through your busy day. Auckland couple Alana Chong and Rob Geraets are importing Kimera Koffee from the Dominican Republic. The coffee contains nootropics – amino acids that could enhance memory and other cognitive functions. A company in the US infuses the synthetically-made nootropic compound into the ground beans. The health-focused couple, who also run a CrossFit gym, say nootropics are popular overseas. But the buzz is slower to reach the New Zealand shores. The result, Alana says, is a delicious tasting coffee that could also help your brain power and athletic performance. She says drinking the coffee helps keep your energy levels balanced across the day, rather than giving you the highs and lows of normal coffee spikes. Although more research is needed to support it, early studies suggest nootropics could help cognitive function in those with Alzheimer’s, dementia, anxiety, and depression too. The pair say if you try the coffee, you could notice a difference in your mental alertness – and who doesn’t want to give that a try?

Founders Joshua Ross (blue) and Adam McCurdie

smartcoffeenz.com

A Storm in a Coffee Cup There’s been a revolution in single-use coffee cups. The people behind Innocent Packaging believe that if you’re going to use a takeaway coffee cup, it should be made from compostable material. The challenge for coffee drinkers who care about the planet is that most coffee cups don’t compost down in home compost bins. The bins don’t get hot enough to break them down. So, cups need to go to a special composting facility. But how does the average person get one coffee cup to one of these commercial locations? Enter Innocent, which specialises in plant-based and compostable products. The company’s just put 100 collection bins across Auckland’s CBD in conjunction with local waste management company We Compost. You can drop any compostable food packaging in one of the bins, to be taken to a facility for proper disposal. Companies who want a bin in their location can pay from NZ$10 a week for collection.

It’s the first city-wide compostable coffee cup service in New Zealand – and there are plans to expand around the country.

because convenience is a queen after all, but if they’re going to stay around, they should be made from the best possible material.

General manager Fraser Hanson says he will always promote reusable cups first.

“We want to make sustainability as easy and as simple as possible.”

“Takeaway coffee cups, however, will never go away,

innocentpackaging.co.nz SUMMER 2018

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On the world stage Brent McGlashen, a fifth-generation hop farmer in Motueka, co-runs Mac Hops, the biggest hop farm in the country.

Top of the Hops The rise of craft beer is putting hops into the spotlight. Claire Connell investigates the crop’s new popularity and finds that it’s bringing investment opportunities.

Craft beer is taking a growing chunk of the beer market, and that’s creating an unexpected agricultural bonus. The hop plant that’s used as a major ingredient to create beer is in demand, both in New Zealand, where there are 200 brewers – and worldwide. 56 JUNO |

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He says New Zealand hops, despite making up less than 1 per cent of the world’s hop production, are in high demand. “We seem to be the flavour of the month,” he says. Investment oversubscribed On 30 July, MyFarm opened an investment into a new hop garden being built by Tapawera Hop Garden Limited Partnership. The offer was oversubscribed when it closed on 31 August. The project aimed to start planting a 116-hectare hop garden this spring, and is predicted to generate an average annual cash return of 15 per cent a year by 2023, MyFarm’s head of sales Grant Payton says. New hop exporter Hop Revolution Ltd will manage the garden and sell the hops. Payton says MyFarm raised NZ$18.5 million from 52 investors for the venture. The minimum buy-in was NZ$100,000. There was high interest in the offering as investors recognised the growth of the craft

beer market, Payton says. The hop industry is also extremely expensive to get into, because it’s so capital intensive, Payton says. It was the first time there’s been an offering for hops in the investment market, but Payton says MyFarm plans to do more hop offerings. Market tipping-point? Back in Motueka, McGlashen says over the years, the demand for hops has been up and down. About a decade ago, he says 40,000 hectares of crops were pulled out around the world due to a lack of demand. Craft beer didn’t exist, and hop farmers could barely even afford a new tractor, he says. The last three or four years have been more consistent, McGlashen says, and NZ Hops went from having about 20 customers to several hundred. But the hop market is currently at a tipping point, McGlashen says. The US and emerging markets American hop producers have spent the last four or five years planting more than 2,000 hectares a year of hops, McGlashen says, more than three times the total New Zealand amount. This is currently being

PERSONAL FINANCE

harvested, so it’s a waiting game to see how this will affect the market. Payton says he’s focusing on the growth within the craft beer sector, rather than what’s happening in the US. “Yes, the growth is slowing in the likes of the US. But I focus on the fact that it’s still growing. The other emerging markets [Europe, Asia] are growing, as their beer drinking habits shift towards craft beer.” Risks and research NZ Hops’ update of the 2017-18 summer season showed production was 721,959 kilograms, down 38,570 kilograms from the previous year. Chief executive Doug Donelan says it was a challenging growing season. Demanding conditions had a “significant impact on yields”. A very wet winter and spring brought planting delays. Summer brought a heat wave, which wasn’t much help, followed by February cyclones bringing record rainfall and flooding. Risks for the industry include weather events like those, pests and diseases, fluctuating demand for craft beer, and possible oversupply. Storms that devastated entire crops were an “extreme” event, but all part of the risks of farming, Payton says. “That’s why we encourage people to diversify and have their funds across a number of investments, not have all their eggs in one basket. “I think the craft beer sector is here to stay and will continue growing,” he says. Research and development are needed to understand changes and trends in the craft beer market, so the industry can meet demand for hop production. “New Zealand is small and unique, and we have hops that are not grown anywhere else in the world,” he says. “Brewers will seek this out, so they stand out from other beers in the world.”

The Hop Industry at a Glance •• •• •• •• •• •• ••

NZ Hops, a cooperative of 26 growers, is the biggest player There are other companies too: Hop Revolution and Freestyle Farms Most hop gardens are based around Nelson, where the climate is favourable Export is 80 per cent international, 20 per cent local Crop research and development happens at the Plant & Food Research centre near Nelson We have 600 canopy hectares of hops There are 20 commercial varieties grown in New Zealand.

Top: Hop production well under way in the top of the South. Photos: NZ Hops Above and left: New Zealand hops are in demand worldwide. SUMMER 2018

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Money savvy kids

A generation of Kiwis with financial smarts? Weâ&#x20AC;&#x2122;re in.

Kiwibank is sponsoring 3,300 classrooms to use Banqerâ&#x20AC;&#x2122;s digital financial education platform for free. To find out more and to get it in a classroom you care about go to banqer.co/kiwibank Kiwibank Limited

PERSONAL FINANCE

Conversations About Money

Get Your Kids Set to Save We want our kids to grow up confident with money. Brenda Ward talks to the experts about giving children the skills they need to create a rich financial future.

Mark Lonergan Mark is the Product Manager, Transactional and Overdrafts for Kiwibank.

Simon Brown Simon is the Chief Operating Officer for school financial education platform Banqer.

Dr Pushpa Wood Pushpa is the Director of the Massey Fin-Ed Centre, based at Massey University.

START EARLY By the time Kiwi kids are eight years old, about 80 per cent have already developed spending and savings habits, says research from the Young Enterprise Trust. Have you already missed the boat? If little Johnny and Jenny are already blowing all their pocket money on lollies at eight, that’s bad news. They could struggle with debt all their lives, and find it difficult to save for a house deposit. But if they’re watching the coins growing in their money jar towards a holiday treat, you’re probably setting them up for life-long savings success. One of the most important skills you can teach a child is to make them financially capable, says Dr Pushpa Wood, who heads the Massey Fin-Ed Centre. “If you want to introduce children to the whole notion of money and their relationship with money, the earlier you start, the better equipped they’ll be.”

This article is intended as general information only. It does not take into account your financial situation and goals, and is not personalised advice. For advice about your particular circumstances, please see your financial adviser.

We might all have different goals, but what’s important is having one to begin with. What’s ours? To help make Kiwis better off. The future is ours to create. Let’s go.

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THE MILLION-DOLLAR QUESTION If you’re going to do it, how much pocket money should you give your children? First, talk to your kids about ‘wants’ and ‘needs’ – and the difference between them, says Wood. Set an amount and stick to it. “I had my 10-year-old coming to me and saying, ‘But everybody in my class has this much. Why am I not getting that?’ “As soon as you start giving in to that notion, what you’re doing is encouraging them to start comparing themselves to others financially. You’re subscribing to that notion of keeping up with the Joneses.”

POCKET MONEY Don’t see pocket money as a given, or as a treat, say the experts. See it as a learning opportunity. Wood says not to give pocket money to children until they understand the value of money, and perhaps not at all, if you can’t afford it. She wasn’t given pocket money.

Lonergan says how much you give depends on each family. “There’s probably a range between a dollar a week and NZ$15 a week, and that depends on how much they’re expected to do for it, the parents’ financial situation and what they can afford.”

“My parents’ question to me was, ‘What do you need pocket money for? When you need something, you can come to us and we’ll provide it’.” Kiwibank’s Mark Lonergan suggests linking pocket money to chores. “You earned it, it’s yours. It’s more what life’s like – you do something and then you get the reward for it.” Simon Brown, chief operating officer of school financial education platform Banqer, says: “Some parents encourage kids to save, share, and spend a portion of their pocket money.” He suggests putting the cash in three glass jars, so they can watch it accumulate. Wood says in some Asian cultures investing is a priority, so it’s common there to split pocket money four ways – a quarter saved, spent, shared, and invested.

BANK ON IT Lonergan started a bank account for each of his children when they were babies and puts away a sum each pay. He’s aware that’s not possible for every family. For the children’s own accounts, he suggests operating with good, old-fashioned cash. “For kids, it’s hard to see growth from a bunch of numbers.” Wood agrees. “If you want to teach somebody the value of money, let them handle it and learn that once it’s gone, it’s gone.” As soon as your kids understand the concept of money, look for a bank with a special account for children. Kiwibank offers a First Saver account, says Lonergan. “It essentially gives a higher rate of interest for all the balances within there. We’re trying to encourage the younger kids to get into good savings habits.” There are no account management or transaction fees, and they can personalise their account. For example, ‘Sam’s new bike savings.’

We might all have different goals, but what’s important is having one to begin with. What’s ours? To help make Kiwis better off. The future is ours to create. Let’s go.

PERSONAL FINANCE

A CLASS ACT Brown’s focus is all about kids learning about money in the classroom, using the Banqer programme.

DREAMS AND GOALS Get kids hooked on what they’re saving for, says Wood. “Work with them to create their ‘dream board’ with pictures and words. What is their dream? What do they want to do for Christmas this year?” Show your kids the ATM receipts when you get cash, says Lonergan. They can see you need money saved in the account before you can get it out. In the Lonergan house, there are incentives for saving. “If I gave my daughter NZ$15 a week, she could still go and buy things. But if I said to her, I’ll match whatever you save, that encourages her to save more of it. “It’s a reward for savings, but also a reminder of what happens in the real world, where money saved earns you interest.”

NEVER TOO SOON FOR KIWISAVER KiwiSaver is an investment scheme for retirement and buying your first home, not for kids, right? Wrong, say the experts. Pushpa Wood says it’s never too early to join. “I’m all for any savings scheme that encourages people to save – and I think KiwiSaver is still one of best tools around to help people to save. “It’s not easily accessible to withdraw from, so it actually forces people into that long-term savings behaviour.” Brown says if parents can open a KiwiSaver account for their kids early, it can have a massive effect on their savings down the track. Wood suggests actively engaging your children in their KiwiSaver investment, even asking them to help choose their provider. She stresses it’s important for them to understand that it’s a long-term savings plan, and if they want to go on an OE or pay for their education, they can’t withdraw it for that.

Banqer reaches 60,000 New Zealand primary school students and turns classrooms into a virtual economy. Brown says learning about money should be a two-pronged approach, at home and at school. “Unfortunately, it’s been proven that it doesn’t always happen at home,” Brown says. “That might be because the parents have their own lack of financial skills, or maybe they’re just too busy and they don’t really think about it.” With Banqer (banqer.co), teachers set up a currency and facilitate reallife situations over the course of the school year to enable students to learn about growing money, debt, interest, tax, KiwiSaver, and insurance. Kiwibank says it’s passionate about making sure all Kiwi kids are prepared for the financial world ahead, which is why it works with Banqer to enable classrooms to access the platform for free.

Find out more about how you can get Banqer’s financial literacy programme into your kid’s classroom at banqer.co.

First Saver is the perfect first bank account for young savers up to the age of 19. www.kiwibank.co.nz/first-saver

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IT’S PAYDAY! Earning money from your first real job is a milestone. Help young people understand what their pay means, says Wood. “Help them calculate what they’ll be getting; that’s one column. “The other column is their outgoings. What expenses are they going to pay from that money, and how much are they going to put aside for savings? It could be as little as NZ$5 every payday.” Lonergan suggests whenever they get a pay rise, they put some into savings. “There’s this law of nature that says the more money you earn, the more you’re able to spend. Your lifestyle simply expands or contracts, based on what you’re earning. Put away a little of that extra and you’ll never notice the difference.” He says there’s no real difference in lifestyles between someone earning NZ$50,000 and someone earning NZ$70,000. “They still buy clothes and eat out at restaurants. It’s just nicer clothes, and nicer food at nicer restaurants.”

STUDENT LOANS An education is an investment towards a lifetime of earning, so most of us might agree it’s worth borrowing for.

Super-investor Warren Buffett wants to leave his kids “enough money so that they would feel they could do anything, but not so much that they could do nothing”.

But the first question to ask, says Wood, is whether you should take out a loan at all? Are you studying towards a better career, or just to broaden your horizons? If it’s the latter, you could work for a year to save for your studies instead. The second question is: How will you pay it back? Make sure your kids have a plan. Kiwibank’s Lonergan suggests you give teenagers some tips before they borrow. Work through the figures with them, so they set themselves a budget. They might be shocked to see how quickly a student loan grows. Maybe if they get a part-time job, they won’t need to borrow the full amount for living costs. Or maybe money from a part-time job before they start tertiary education could go towards study fees.

TIPS FOR TRUST-FUND KIDS When you get a windfall, everyone behaves differently. Like those of us who spent all our money on lollies as kids, some of us will blow it and some will save it. Results from a long-running United States Bureau of Labor survey suggested roughly half of all money inherited is saved, and the other half is spent or lost investing. That’s a real consideration when many of us will be considering passing on money to our children or grandchildren as an inheritance. Kids are more likely to blow an inheritance and not save it if you haven’t had conversations with them from a young age on how to manage their money better, says Wood. She suggests you help a child while you’re alive when you’ll enjoy seeing them receive it, rather than leaving them an inheritance. She says inheritances are a privilege, not a birthright. “They haven’t earned that money just by virtue of being born in a family, and they need to understand that.” So be sure to educate your kids about money so they’re equipped with skills to create a rich financial future for themselves.

First Saver is the perfect first bank account for young savers up to the age of 19. www.kiwibank.co.nz/first-saver

ADVERTORIAL

Hatch: Your Access to the World

any New Zealanders’ diversified portfolio. You can now own a percentage of an Amazon share and still benefit from their success.

You’re in good hands

Hatch is a newly launched investment platform that lets Kiwis buy full and fractional shares in the brands they believe in. Hatch gives you access to over 2,700 companies and 450+ ETFs listed on the US share markets. In just four weeks since launch, hundreds of investors have signed up and more than $1.1 million has been invested. The US share markets are just the start, Hatch has big plans to provide better, faster, and more affordable access to world-class financial tools and products.

The world at your fingertips GM of Hatch, Kristen Lunman, says it’s not just the vast number of US listed companies that makes Hatch different. New Zealanders now have the whole world at their fingertips.

Hatch is the digital investment platform for Kiwi Wealth, a sister company to Kiwibank; 100% Kiwi owned and 100% committed to making Kiwis better off.

“Not everyone has the time needed to invest wisely in individual companies, which is why global markets are on the menu. You can invest in more than 450 index, industry, and style-based ETFs from well-known asset managers like BlackRock and Vanguard, diversifying your portfolio at the touch of a screen.”

The revolutionary platform is the result of several months of customer interviews where Kiwi investors like you asked again and again for access to overseas share markets. Well, Hatch listened and investors love it. Here’s the proof:

“I am loving the fact it’s a very very very very very, did I mention VERY cost effective way to trade foreign stocks on NZ, my alternative used to cost me a fortune, hence I never bought too many foreign stocks. I will now!”

Hatch is also the first of its kind to bring fractional shares to New Zealand, letting investors buy portions of companies they might not normally be able to afford. Take Amazon, with a share price that sits around $2,000 USD, it can now be part of

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“Great to see you guys actually listen to your customers, makes a refreshing change.”

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Jan 2020

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UNFILTERED Game-changer series with Jake Millar

Five Minutes With Mike Taylor At 18, Mike Taylor invested in his first shares and soon started managing money for friends and family. Believing he could outperform the others, in 2007 Mike founded Pie Funds â&#x20AC;&#x201C; a start-up funds management business with just a handful of clients. More than a decade on, his company manages around NZ$1 billion for thousands of Kiwis and employs 42 people. Recently, Taylor hit the news when Pie Funds and JUNO magazine launched the JUNO KiwiSaver Scheme. The Founder, CEO, & CIO at Pie Funds spoke to Jake Millar.

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“It just so happened for me that I was quite good at identifying businesses that ended up doing well. I knew I could make money off that and then make a business out of it.”

What was the most transformative business experience you’ve ever been through? It was in 2007-08 – the Global Financial Crisis (GFC). When you’re involved in the financial industry and, in particular, picking stocks for people, it doesn’t get any worse than that. To experience that literally just as you start your business was hell on earth. Were there any positive things that came out of the GFC for your business? Because it was such a scorched earth for equities, it just levelled the playing field for everyone. And it enabled me to start at a time when I could buy assets that were really, really cheap. So, in the year 2009, that meant that my fund’s performance was up 105 per cent. Where did your love for stocks come from when you were a youngster? I guess my love of stocks is for a couple of reasons. The first is about being right, so when you make an investment in the company and it turns out to be profitable for you, there’s an immense sense of satisfaction. There’s also the fact that I was never particularly good at working for other people. I really needed to define my own destiny. And it just so happened for me that I was quite good at identifying businesses that ended up doing well. I knew I could make money off that and then make a business out of it. If you were starting out today, what would your pathway be as an investor? The best thing you can do is what I did, which is just read as much as you can. You’re just going to read like a massive sponge. Read the financial news every single day and not just The New Zealand Herald – get

yourself far and wide. The Financial Times, The Wall Street Journal, and The Australian Financial Review. Give yourself a nice broad global knowledge. Then read some basic investment books to tool yourself up, to understand what type of investor you want to be. Has diversity across different industries and markets been a positive thing, or do you think, just choose one thing that you’re the master at and just focus on those? I think you probably find that some of the best entrepreneurs and best business owners don’t diversify themselves. They put all their eggs in one basket and they watch their basket. However, as an investor in shares or property, you don’t want to bet everything on one stock or one building. That’s dangerous. What’s one of the best bits of advice you think you’ve ever been given? Probably to avoid companies with too much debt, because debt’s a burden. And if you’ve got no debt, then you can always trade out of your problems. But if you have a lot of debt and then something goes wrong, all of a sudden, you’ve got pressure from your bankers, and then the company might need to raise money, dilute its shareholders and, yeah, it can be all over. Is there a fundamental truth or something that you believe to be true that not many people agree with you on? Most people perceive what I do to be really high risk. But the reality is, we’re not actually taking massive risk. It is riskier than having money on term deposit, that’s obvious. But we’re not out there betting the farm on every idea. That’s the biggest misconception.

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Could KiwiBuild Hit Your House Price? The government’s KiwiBuild project promises 100,000 homes for first-home buyers. But how will this affect your home’s value? Claire Connell reports.

If the government keeps building KiwiBuild homes without monitoring demand, it could crash property prices, says Andrew King, executive officer of the New Zealand Property Investors’ Federation. “Initially, KiwiBuild could be a good thing, because we need more properties. But then, once it’s done its job, building might carry on and become a negative thing – that’s the concern.” Migration could fall King says the housing shortage has been fuelled by high migration figures. What if there’s a mass exodus from New Zealand, or people stop arriving, he asks. Annual net migration was down 8,800 (to 63,300) in the year to August, compared with the previous year, Statistics New Zealand says. This is the lowest August year since 2015. “If we carry on building, and migration levels fall back to normal, that will definitely have a negative effect on property prices,” King says. “You’re basically increasing supply when demand isn’t there, or it’s falling. It needs to be constantly monitored. “The estimate of the number of houses we need is not an exact science. We definitely need more properties, but how many we need and whether we will continue to need them is really hard to determine.” Price gap Simon Bryant, senior panel manager for online property valuation experts Valocity, agrees KiwiBuild is “likely” to have an effect on price in areas where there’s a large gap between the KiwiBuild sale price and the median sale price. 66 JUNO |

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PROPERTY

Below: The first 18 KiwiBuild homes at the McLennan development in Auckland. The homes are a mixture of three and four-bedroom homes. Photos: KiwiBuild

This could happen in Auckland, where the cap for KiwiBuild homes is NZ$650,000, he says. The Auckland median sale price is NZ$840,000, so new homes coming on the market at a lesser price may affect the price of existing stock. But Kiwibank’s chief economist Jarrod Kerr says KiwiBuild will help combat the huge undersupply of houses nationwide. “Looking at the current price of a house, will it go up or down on the back of KiwiBuild? I don’t think we’ll see enough supply in order for it to go down,” he says. House prices might not rise as much once the homes are on the market. “But I would argue that across the whole of Auckland, we are so short of quality dwellings and rental properties that we’re adding to a pool that’s undersupplied. “So yes, one street might be affected negatively, but I think across the whole market we are actually trying to start solving a problem,” Kerr says.

KiwiBuild might have an effect on investors, she says, but other factors affect them more. These include legislative changes, such as the Healthy Homes insulation bill, interest rate changes, and loan-to-value restrictions. “I think it’s going to take a number of years before the programme starts to have any significant impact on the market.” Targets not expected to change

“Whatever growth in house prices we have over the next decade or two will be less because of the supply that is going to come on board. And I think it’s a good story.”

Housing and Urban Development Minister Phil Twyford says, even with softening immigration numbers, “I don’t expect to be revisiting the KiwiBuild targets”.

Quality is a concern

Twyford says the country faces a “dire” housing crisis, with estimates saying there’s a shortage of 71,000 homes, with 45,000 of those in Auckland.

Bindi Norwell, chief executive of the Real Estate Institute of New Zealand, says she supports KiwiBuild as there is a significant shortage of properties to keep up with the level of demand, however quality and red tape are her two concerns with the scheme. She wants a focus on consistent building standards across all KiwiBuild homes. Removing existing red tape will help make the programme more efficient.

What is KiwiBuild? KiwiBuild is a governmentrun programme that aims to help address New Zealand’s housing shortage, and increase home ownership rates. KiwiBuild aims to deliver 100,000 affordable homes for first-home buyers over the next 10 years, with around 50,000 of these in the Auckland area. kiwibuild.govt.nz

“By building modest starter homes, and the other measures the government has taken to stop speculators, we expect house prices to stabilise and not increase as fast as they did over the last decade. “Although modest, KiwiBuild homes will match the communities in which they are built,” he says. SUMMER 2018

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The Beginner’s Guide to Property Investment Ready to put some money into a rental property? Andrew Nicol, of Opes Partners, will guide you through the process in the second of our four-part series.

Funding Your First Rental Why invest in property? There are lots of reasons, but one of the most compelling is leverage.

Unlike shares or businesses, banks love to lend money on property. That means you can use the bank’s money to make your money (or equity) work harder and earn more. We call this ‘leverage’. When you first think about property investment, you tend to think about the kind of house you want and where it might be. But, as any experienced investor will tell you, that’s the wrong place to start. You should spend more time thinking about how to fund your property and how to structure your ownership and borrowing so you can get the most from your investment, and keep buying in the future.

Don’t go it alone Are you trying to deal with your bank because you think you can negotiate a better deal by going direct? Stick to your day job and save yourself a ton of time – you need a broker. We work with lots of fantastic advisers who help our clients to structure their borrowing in a way that makes the most out of every dollar. The right structures prevent you from getting stuck when it comes to buying a third and fourth property. When you get it right, property investment can make your money work harder, ultimately creating a passive cashflow that gives you the freedom to live life on your terms.

It’s getting chilly out there The climate for borrowers has become decidedly chillier. Where you could once borrow up to nine times your income in some circumstances, you’re now restricted to four-and-a-half times, or possibly five times your income. Calculations for paying the loan have changed. Banks are looking at your spending habits and are coming down heavily on unsecured debt. Property investors find interest-only loans useful – that’s where you pay back none of the principal you’ve borrowed, just interest. Often this is more tax efficient (if you have your own mortgage), but also it improves cashflow, allowing you to invest in more property. But in this climate, getting one of these loans from your bank is no longer a given. Even if you can get one, every time you want to roll over your interestonly debt, you’ll need to reapply as though you were getting a new loan.

NEXT ISSUE: Managing your investment property

Give Opes Partners a call on 0800 676 737. We’re happy to have a free, no-obligation chat to you about your property investment options.

PROPERTY

One bank, or two? Having all of your eggs in one basket when it comes to banking can be risky business. Take Jane and George, who retired this year. They owned a rental property, but they sold their family home to downsize and free up some cash. Both mortgages were with the same bank. The bank not only took the NZ$200,000 cash the couple made from the sale of their own home, but also took an additional NZ$150,000 out of Jane and George’s savings – and cancelled their credit cards. We managed to relieve their situation slightly, but it took a lot of phone calls and it was horrendously stressful for Jane and George. For that reason, we wouldn’t advise investors to get stuck with a single bank, where all your properties are ‘cross-collateralised’, which means they’re all securing each other.

How to use several banks

That property, if needed to cover another debt with the same lender, can be called upon to meet a shortfall.

To avoid LVR hitches, for your first property, you want to borrow your deposit from Bank A, and borrow against the property from Bank B. Then, when you have several properties, you’ll want to be split between Banks A and B, with extra support from Bank C.

Nor should you have your own home and a rental property with the same bank. Having different banks gives you ‘firewalls’, so if an investment is in trouble, the bank won’t sell your home from under you.

I know this sounds complicated, and it is, but a good mortgage broker will understand this and help you to navigate the treacherous waters.

If you’re buying a new build, you only need a 10 or 20 per cent deposit. Great news. But the day after settlement, if you're borrowing from the same bank, they will want you to have 35 per cent equity in that property before you borrow any more.

Is your mortgage adviser telling you it’s too complex and timeconsuming to do all the paperwork for two or three different lenders? You need a new adviser.

That means your advantage has evaporated. Borrow from separate banks, however, and you can make your money work harder for you.

This is also a good time to visit your lawyer and have them run through the documents you’re about to sign.

There is a clause in a loan known as ‘cross-securitised collateralised debt obligations’ and it gives a bank priority over any property offered to secure a loan.

ADVERTORIAL

Helping Create Financial Futures Investors want good returns on transparent investments they understand – and borrowers want home loans. Southern Cross Partners can help bring the two together. Above: Southern Cross Partners founders Barry and Julia Milward.

In property, there are two distinct financial needs: either you’re an investor and you want to get good returns, or you’re a borrower and you’re looking for funding. Southern Cross Partners is a peer-to-peer finance provider that helps investors maximise their savings and helps borrowers get home loans. The owners’ vision The Southern Cross story starts in 1997, when founders Barry and Julia Milward (pictured above) realised people were struggling to get the finance they needed to realise their business dreams. With many years of successful business in the UK under their belt, they started up their boutique company providing mortgage finance secured against property. Over the years, the company grew, with a ‘slow and steady’ philosophy proving vital as they navigated the Global Financial Crisis of 2007-08. Today, Southern Cross Partners is the largest property-backed peer-topeer lender in New Zealand.

It’s helped thousands of Kiwis make the lives they imagine a reality, with competitive investment returns and uncomplicated finance. Who borrows Southern Cross Partners takes a conservative approach to loan-to-value ratios (LVRs) on loans it provides. There are many different reasons why a borrower, with sufficient equity in their property, may still look for an alternative to bank funding: •• Property lending for self-employed business people •• Investing in property •• Needing bridging finance •• Doing renovations or construction •• Releasing equity in their homes. Innovation Southern Cross Partners offers you a different kind of investment. Past returns have been 6.25 per cent to 8 per cent (subject to change) and how they do it is brilliantly simple. They offer investors the opportunity to partner with them, using the company’s long-standing history of sourcing and managing short-term mortgage loans. Investors have complete control over which loans they choose, and to what level they participate. There’s a minimum investment of NZ$10,000. This concept has proven popular with investors who are looking for regular returns with a clear understanding of the security that’s supporting their investment. Live life now There comes a time in your life when you’re no longer looking for capital gains, when you’d rather enjoy the fruits of your hard work and live a little more in the moment.

ADVERTORIAL

At times like these, you want regular returns from your investments, but without sacrificing great rates. You could be a soon-to-be retiree, about to step down from the company you’ve run for years and looking for an income to help enjoy your new life. Or maybe you’ve sold your business and are embarking on a whole new set of adventures. Southern Cross Partners could be the right company for you. Like all investments, there are risks involved. You may wish speak to a financial adviser to find out if this type of investment is suitable for you and has the risk profile you’re comfortable with.

Over the years, the company grew, with a ‘slow and steady’ philosophy proving vital as they navigated the Global Financial Crisis of 2007-08. Today, Southern Cross Partners is the largest property-backed peer-to-peer lender in New Zealand.

The rise of peer-to-peer lending The popularity of peer-to-peer lending companies that help a wide range of people with investment and borrowing is rising – and Southern Cross Partners is no exception. Innovative investment opportunities and a no-fuss approach to mortgages has led to their growth from a two-person boutique company in 1997 to the nationwide business it is today.

LIFE DOESN’T WAIT, NEITHER SHOULD YOUR INVESTMENTS.

Disclaimer: Investment rate subject to change. Southern Cross Partners Ltd is a licenced Peer to Peer lender under the Financial Markets Conduct Act 2013. To learn more about the risks associated with this type of investment, visit our website southerncrosspartners.co.nz Content of the advertorial is the opinion of Southern Cross Partners and not intended as personalised financial advice. You should seek independent financial advice from an authorised financial advisor before making any investment decisions. Past performance is not a reliable indicator of future performance. This advertorial reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.

Returns from 6.25% to 8%* Sometimes it can be hard to balance the need to save for your future, as well as enjoying the adventures that pop up every day. Our unique investment model offers you the flexibility to do both. At Southern Cross Partners, we offer mortgage secured loans that allow investors to pick and choose their level of involvement. With returns of 6.25% - 8%* paid out monthly, you’ll know you’re making the most of your savings and can make the most of life at the same time. Talk to us today about a new, flexible way to invest. Phone 0800 00 58 43 www.southerncrosspartners.co.nz

* Investment rate subject to change. Southern Cross Partners Ltd is a licensed Peer to Peer lender under the Financial Markets Conduct Act 2013.

What’s Happening in the Property Market? As we near the end of another busy year for the New Zealand economy, Valocity’s senior panel manager Simon Bryant crunches the numbers on residential property.

The heat’s turned down

Sales by Registration Type

The national median sale price has stayed relatively stable year-on-year (YOY), down 1 per cent and now sitting at NZ$515,000.

Rolling 3 months YOY Growth

Sales volumes are also down, reflecting softer market conditions. The number of houses sold nationwide each year has gone down 8.1 per cent.

MOVERS

-6.1%

INVESTORS

+0.7%

FIRST HOMES

+5.4%

RESIDENTIAL

-11.6%

APARTMENT

-6.5%

Both of these factors show the ‘heat’ has come out of the property market, but they don’t suggest that the market has crashed. Far from it. Our analysis of the New Zealand property market shows this softening effect across the country has affected areas differently. Some regions or suburbs have been seeing greater declines in value and activity than others. There are several factors driving these market conditions. They could be: • The availability of mortgage finance, although we hear suggestions that this trend may reverse as we approach the summer months. • Tougher requirements for foreign buyers. • Low New Zealand business confidence and uncertainty surrounding the global economy.

Sales by PropertyType Rolling 3 months YOY Growth

One theme we see is first-home buyers coming back into the market. They continue to show a steady increase. However, investors’ share of new mortgage registrations has shown signs of stabilisation.

MEDIAN HOUSING SALE PRICE MEDIAN HOUSING SALE PRICE

FLAT FLATAT AT-1.0% -1.0%

HOUSES HOUSESSOLD SOLD

DOWN DOWN8.1% 8.1% (on (onlast lastyear) year)

-14.3%

LIFESTYLE

(on last year) (on last year)

Median Sale Price for Key Regions $900k 13.8%

$800k 12.1%

$700k

10.7%

9.9%

$600k $500k

NEW NEWRESIDENTIAL RESIDENTIALBUILDING BUILDINGCONSENT CONSENT

DOWN DOWN 1.6% 1.6% (on (onlast lastyear) year)

5.8%

$400k 1.6%

$300k

2.7% 0.8%

$200k $100k $k

-3.3%

Auckland

Tauranga

Hamilton

Manawatu

Hawkes Bay

Current Median Sale Price

72 JUNO |

SUMMER 2018

Taranaki

YoY Change

Wellington

Christchurch

Dunedin

Auckland

Dunedin

The Auckland region has been most affected by the weaker market conditions, with a drop in the median sale price of 3.3 per cent annually, to NZ$817,500. This is the only region that’s gone into the negative this year, but most of New Zealand’s housing stock is in Auckland, so it has a big effect on the statistics.

Dunedin has shown strong annual growth of 9.9 per cent, with the median sale price up to NZ$390,000. This region has also seen a leap in the number of new mortgages to investors, up 32.4 per cent annually. The area is considered the most affordable of the main centres, and appeals to all buyer types, with half of all residential sales in Dunedin below NZ$400,000.

Activity has slowed down in areas where there are a lot of rental properties, like Clendon Park and Otahuhu. Investors have been hit by loan-to-value restrictions, changes to the % of Sales byHealthy ValueHomes BandGuarantee vs. Total Act,Housing and taxes. Stock Some property types are taking longer to sell and are being passed in at auction.

Percentage of Sales by Value Band vs. Total Housing Stock 35% 35

30% 30

25%

35%

However, attractive homes in sought-after locations are still selling at strong prices.

30% 30

25%

20% 20

15% 15

Tauranga

20% 20

15% 10% 10

5% 5

Tauranga has stayed relatively stable, with a small increase of 1.6 per cent, and a median sale price of NZ$635,000.

10%

<$100K

First-home buyers seem to be the most active there, up 6.4 per$200-$300K cent this$300-$400K year. In contrast to$500K-$600K this, new$600K-$700K mortgages $400-$500K $700K-$800K to investors are still reducing, down 41 per cent when compared with the same time last year.

$100-$200K

Hamilton The Hamilton market has been subdued over the last year, with the number of houses for sale down around 15 per cent – but the median sale price, NZ$531,750, is 2.7 per cent higher than last year. But there has been an increase in the number of investors getting into the market, with new mortgages up 30 per cent, increasing faster than first-home buyers at 12 per cent. The most active part of the Hamilton residential market is houses between NZ$400,000 and NZ$600,000, which make up 46 per cent of sales. That suggests investors may still taking advantage of the low interest rates to buy in areas considered ‘affordable’.

Wellington Wellington shows the strongest movement among our larger cities, with median prices up 10.7 per cent annually, to NZ$600,000. This strengthening price could be due to two things. Sales volumes have dropped over the past two years, and many locations have limited listings, which has meant buyers are competing for houses. About half of Wellington’s housing stock falls between NZ$600,000 and NZ$1 million.

Christchurch

% OF SALES

0% 0

$100-$200K

<$100K

$200-$300K

$300-$400K

$400-$500K

$500K-$600K

$600K-$700K

$700K-$800K

$800K+

% OF SALES $800K+

% OF HOUSING STOCK

Nationwide property snapshot National median sales price movement (YOY)

AKL

DOWN 3.3%

TGA

UP 1.6% HAM

UP 2.7%

DUN

UP 9.9%

WEL

UP 10.7%

CHC

UP 0.8%

The Christchurch housing market has stabilised further over the past year. Large numbers of new homes being built were leading to high numbers of listings. Now, the post-earthquake residential rebuild appears to have reached its peak, and new building consents have gone down about 40 per cent over the past 18 months. The median sale price for this region is NZ$423,450, an annual change of 0.8 per cent. It seems that supply is well matched with demand, or in some areas exceeds it. That’s led to a prolonged period of soft or stable market conditions.

National median sales price

$515K SUMMER 2018

JUNO 73

% OF HOUSING STO

ADVERTORIAL

An Opportunity to Get into Commercial Property The solidly-performing sector and AA ratings are driving Property Managers Group growth. No one knows what the future holds for the local and global economy. Former ANZ Chief Economist Cameron Bagrie, now of Bagrie Economics, has predicted ongoing volatility and share market uncertainty, but no massive correction.

In September this year, Colliers reported that investment in New Zealand commercial property across the office, retail, industrial, and hotel sectors remained buoyant. This was due to rental uplifts, a shrinking of stock, increasing tourism, and robust investor activity. Yields are pretty strong

“Growth across the New Zealand economy has moderated and there is growing wariness that a downturn is around the corner,” says Bagrie. “But I don’t like the term ‘downturn’. There are risks, notably offshore, and I’m getting increasingly worried about places like China. But the New Zealand economy is in reasonable shape when we eye the bigger picture. Where the world goes we will follow though, and there are a lot of risks. “The economy does have points of vulnerability, such as extended Auckland property prices, but not an array of warning signs,” he says.

McKenzie says compared to other asset classes, including residential, bank bonds and listed property vehicles (LPVs), unlisted commercial is currently paying better yields. PMG is also providing exposure to diversified and passive property investment opportunities – models which are not necessarily easily replicated by individual investors, he says. What are the risks? While unlisted commercial property yields might be currently strong, like any investment, there are risks involved.

Important factors to consider in commercial property include the property location and market relevance, quality of tenant and lease terms, demand for the space, and the current market and economy. Yields can also vary, depending on what part of the country you’re in. It’s important to speak to a financial adviser to find out if commercial property is suitable for you and has the risk profile you’re comfortable with. McKenzie says one of the benefits of unlisted commercial property is that values are not as affected by volatility in the share market. Managing risk and debt to equity ratios “Investors gravitate back to tangible assets with easily identifiable revenue streams when markets are volatile and uncertain, just as we’re seeing now,” says McKenzie. He says PMG’s business model ensures the debt-to-equity ratio is “managed as conservatively as possible”. Investment funds are diversified by sector and geography, with multiple buildings and tenants. This helps manage the risk involved, he says, help preserve investor capital, and allow more reliable cashflow. “While we can’t predict the economic future, PMG’s 26-year proven track record of providing sustainable returns through a variety of challenging economic fluctuations, and our business model, puts us in good stead to help weather any pending turbulence,” he says.

Residential might be less attractive It’s no secret New Zealand has a love affair 10 with property, particularly residential. However, increasing compliance, the extension of the bright-line test, and increasing 8 capital values are making residential investment less attractive.

Figure 1. Returns Across Asset Classes

6.90%

Scott McKenzie, chief executive of PMG, says the company is seeing 4 more traditional residential property investors investing in its direct 2 commercial property funds. McKenzie says the main reason for this is the currently solid-performing commercial property sector, underpinned by goodperforming New Zealand businesses. Plus, two of PMG’s funds were recently given AA recommended ratings from FundSource (far right), which has helped raise the company’s profile.

8.10%

5.10% 2.65%

90 day bank rate

3.25%

6 months term deposit

3.80%

Residential property

NZX50

Listed property

PMG's PPF

Source: RBNZ, Bloomberg, Interest.co.nz, Craig’s Investment Partners estimates. Residential cash yields are calculated on the average annual gross return across Auckland, Hamilton and Tauranga, March 2018. Pacific Property yield reflects an implied gross dividend yield for an investor with a 30 per cent marginal personal tax rate of the latest traded price on the secondary market for May 2018 of $1.02.

PMG is one of New Zealand’s most established and trusted private property and fund managers. For over 25 years, PMG has been invested in helping deliver long-term sustainability and value for investors through proactive management and portfolio diversification.

ADVERTORIAL

Funds Get Tick from Industry Leaders Two of PMG’s funds recently received high praise from industry leaders – with AA ratings given to both.

Both funds have also been praised by Northington Partners, an independent investment advisory business.

This makes PMG the first unlisted fund and property manager to receive two ratings, given by independent investment researcher, NZX-owned FundSource.

For the Pacific Property Fund, the Northington report found that from a yield perspective, the fund is “performing better than the majority of its listed and unlisted peers”.

The Pacific Property Fund Limited (PPF) and PMG Direct Office Fund (PMG DOF), picked up the ratings, which places both portfolios in the top 20 per cent of the 56 FundSource funds. FundSource described in a report that it was impressed by PMG’s investment philosophy, and that the Pacific Property Fund was a “unique offering” in the New Zealand market. FundSource says recent diversification of capital sources by the company should see PMG remain a sustainable business.

The fund has delivered “a commendable track record of shareholder returns, as well as having below average issuance costs relative to other unlisted property investment entities (which are the costs of raising new capital)”. PMG’s Scott McKenzie says this recognition by reputable research bodies “acknowledges the strong performance, structure and sustainability of the two funds”. “While not on a listed platform, PMG’s

Two funds have been recognised by investment researchers FundSource and Northington Partners, both picking up AA ratings. funds have demonstrated strong secondary liquidity, trading in some cases at similar relative volumes to listed property entities. “What unlisted property funds can provide is potentially greater stability in value and regular returns, relative to listed vehicles,” says McKenzie. Disclaimer: Content of the advertorial is the opinion of Scott McKenzie and not intended as personalised financial advice. You should seek independent financial advice from an authorised financial adviser before making any investment decisions. Past performance is not a reliable indicator of future performance. This advertorial reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.

PACIFIC PROPERTY FUND

LATEST OFFER Growth continues with $37.4m capital raise for two industrial properties

Targeted Return

7.25

cents per share, projected cash distribution (p.a.)¹

At PMG our strategy is to position our portfolios to thrive in any weather.

99%²

12 Retail, industrial and office properties

Occupancy

6.40 years³

41.2%⁴

WALT (weighted average lease term)

Gearing

This is the largest offer yet by Pacific Property Fund Limited (PPF), to acquire two additional industrial buildings in Hamilton and Palmerston North for $52m. For a minimum investment of 20,000 shares, investors can gain exposure to 12 industrial, office and retail properties with a projected gross cash distribution of 7.25 cents per share for the full financial year to 31 March 2020. Assuming successful completion of the offer, Pacific Property is issuing 36,000,000 new shares at $1.04 per share. Visit www.propertymgr.co.nz to find out why PPF has been rated ‘AA’ by NZX research house FundSource and download the latest offer information.

Minimum Investment: 20,000 Shares at $1.04 per Share ($20,800)

¹Projected gross cash dividend return for the full financial year to 31 March 2020. ²Projected occupancy (assuming the successful completion of the Offer and Acquisition Properties). ³Projected weighted average lease term (WALT) (assuming the successful completion of the Offer and Acquisition Properties). ⁴Projected gearing (assuming the successful completion of the Offer and Acquisition Properties). The selling agents are not providing personalised advice. As such, prospective investors are recommended to seek professional advice from an authorised financial adviser which takes into account their personal circumstances before making any investment decision. The selling agent will make a copy of the Product Disclosure Statement and Adviser Disclosure Statement available to all prospective investors on request and free of charge. The offer is open for a limited time.

“AA” RATED

Subscribe to Win A COAST Luxury Lounger Subscribe to JUNO for a year (four issues) for $35 and you’ll go into the draw to win a COAST lounger, valued at $1,600, that’s perfect for the summer days ahead. Go to junoinvesting.co.nz/subscribe

Made in New Zealand, the Isla lounger is the last word in indoor/outdoor luxury, combining the comfort you expect from COAST’s classic outdoor beanbag range, with the flexibility of modular furniture. This luxurious combination is achieved through the development of a unique, patented internal structure, which supports the beanbag, yet remains comfortable and forgiving. It includes a water-resistant lining, allowing the Sunbrella fabric shell to be removed for cleaning, airing, or winter storage, and it comes with a five-year exterior guarantee. coastnewzealand.com

Terms and conditions: The prize is as stated, one COAST Isla lounger, worth $1,600. Prize is not transferable and is not redeemable for cash. Offer expires on 30 January, 2019. The prize goes to the purchaser of the subscription, and not the recipient. The chance to win applies to one-year paid subscriptions only. Prize draw open to New Zealand residents only. Prize will be delivered to winner by COAST NZ to a New Zealand address only, offshore islands excluded. Filling included. No correspondence will be entered into. Winner will be notified by phone or email.

Book Reviews Reviewed by Sarah Ell

100% Kiwi Business

The New Zealand Money Guide

By Ryan L Jennings

By Lisa Dudson

Published by UmPrint Publishing, NZ$99.98 (businesskiwi.com)

Published by Plus One, NZ$29.95

New Zealand has a proud tradition of innovation and entrepreneurship, with the ‘number-eight wire’ mentality rooted in our national identity. This country is home to more than half a million small businesses. But what does it really take to succeed on the global stage, and create companies that succeed and thrive in the business landscape of the 21st century? Businessman and marketer Ryan Jennings interviewed 100 Kiwi business people for this project, which he describes as “like doing a real-life MBA”. He targeted those in the middle of their business journey, rather than those already at their destination, from a diverse range of industries. These stories became a book filled with insights and covering a vast range of businesses, from wine tasting to lawn mowing. Each business situation is unique, and the insights vary with each entrepreneur, but a common thread emerges. Jennings identifies this as courage, determination, and passion. Do you want to grow your business? Jennings suggests more than 200 questions business people can ask themselves and their teams. It will help them see their enterprise in a new light, challenge conventional wisdoms, and find new, sometimes ‘weird’, ways of doing business. Starting out in business, branding and marketing, digital strategies, and how to make a business that lasts the long haul are all covered. This large-format, hard-bound book is plagued by the usual selfpublishing issues – typographic errors, the need for a good edit, and basic design. But it’s a fascinating read for anyone interested in understanding why this country continues to punch above its weight and succeed.

78 JUNO |

SUMMER 2018

Lisa Dudson is one of the best-known names in New Zealand financial and investment education. Her friendly new guide is subtitled ‘All you need to know about becoming financially secure’, and it sets out to show the average New Zealander how to get their finances under control and grow their wealth, safely. Learn how to sort out your own financial situation, set budgets, keep track of your spending, and manage large purchases, such as cars and houses. For those at an older life-stage, Dudson covers retirement planning, KiwiSaver, and other wealth-creation strategies to start when you have your debts under control. The easy-to-read book takes a practical, hands-on approach, with exercises, checklists, and charts to work through. I like her ‘NZ$21 challenge’, which Dudson suggests you use when funds are low, or even just as a way to make yourself a smarter consumer. Try managing on just NZ$21 to spend on groceries for the week to feed a family of four, largely relying on what you have at hand. It’s tough, but it’ll remind you to get the most value out of your hard-earned money. There’s nothing particularly new or radical in the book, but there is lots of common sense, giving those wanting to sort their finances some basic skills, to help them achieve long-term financial freedom. I’d suggest you use it as a starting point to identify your goals, before looking at more depth into the topics that interest you, or where you need more help. It’d be a useful gift for a young person starting out on life as an independent adult, or a practical read for anyone wanting to get a grip on their finances.

“As the business grows you need cashflow to do everything.” TOM & LUKE

NO ONE GETS KIWI BUSINESS LIKE A KIWI BANK. A banking relationship should be a true meeting of the minds. You want to work with people who not only understand where you’re coming from, but instinctively know what you need to take the next step too. Plus you’ll get the full range of services you’d expect from your business bank. Because whatever your business goal, that’s our goal too.

Let’s go. Call 0800 601 601 or visit kiwibank.co.nz/business

AWARENESS

The devastating Port Hills fire showed how much indiscriminate and widespread damage a rural fire can inflict. Fighting these fires is dangerous and expensive. Predictions of drier summers point to a growing hazard. The risk is greatly reduced though, if you check out the local rules for lighting a fire – ‘Before you light, check it’s alright’. At different places, at different times, there will be complete fire bans. Or, you might be able to light a fire with a permit. Or, there might be no permit necessary. You need a clear area for the fire. Make sure you can, and do, put it out before you leave. So, ‘Before you light, check it’s alright’.

www.checkitsalright.nz

Invested in...

Marlborough Rich soils, sunshine and friendliness make Marlborough amazing – and a great region to be invested in.

Inside

• Spotlight on Marlborough – the region at a glance • Harvesting Grape Returns – a look at vineyard investment • Blue Water Wonders – how one business is invested in sustainability in the Marlborough Sounds • Wine Stories with Spy Valley and Misty Cove • Essential Products of Marlborough • Gastronomy – top venues to visit in the region • Cruising through the Vines – Cloudy Bay’s unique experiences

INVESTED IN…

Spotlight on Marlborough 1,045 vineyards Sauvignon blanc grapes were planted in 1974 – the first in New Zealand

4 hours’ drive to Christchurch

26,007 hectares of grapes – 68% of NZ’s total

Regional GDP $2.3 billion

The region makes up 70% of New Zealand’s wine and aquaculture exports

Statistics: Marlborough District Council, NZTE, New Zealand Winegrowers, REINZ

46,200 residents

Average household income $85,754

The famous Queen Charlotte Track is 70km long

7,059 businesses

Median house price $418,000

MARLBOROUGH

Bright Future Ahead Andrew Bailey, founder of Misty Cove Wines, has good reason to be looking back on the 10-year lifespan of his young wine company. In a short time, the ‘little wine company that could’ has traversed a few obstacles, won an armful of awards and is heading mostly organic. They’ve even released their own canned wine range before larger companies got wind of the idea. Then, this year, the company produced two trophy winning wines – a Grüner Veltliner and Pinot Gris in a region famous for Sauvignon Blanc.

Above Andrew Bailey, the founder of Misty Cove Wines.

All risky moves if you are trying to get a foothold in a rather oversaturated market, where the Marlborough ‘Savvy’ is now a superstar on the world stage. But as Bailey points out, Misty Cove has never been one to play by the rules. “We don’t focus on what others are doing, we focus solely on what we’re doing and what we can handle,” says Bailey.

“It’s much like being on a sporting team, right? You can’t control what the opposition is going to do, so you just focus on what you can do. That starts in the vineyard, through to the wine making, to who you are, and how you portray yourself.” Bailey – a self-professed ‘gumboot winemaker’ – never imagined he would run a company that just won two trophies at the New Zealand Wine of the Year Awards™ 2018. Their Pinot Gris won the Dish Magazine Champion Pinot Gris – Brother Cyprian trophy. Then another trophy was announced in the Other White Wine category, for their 2018 Landmark Series Grüner Veltliner. The trophies themselves were all preceded by gold medals. “The awards are great,” Bailey says. “It’s amazing. But still for me it’s more about producing great wine and something to enjoy with great friends, telling a great story and selling a great product around the world.” And what is it like making wine in Marlborough? “There is no other region in the world quite like Marlborough, frankly. The climate, the soil, it’s just that perfect mix. That’s the truth. We have something very unique and special here, I just hope that we hold the integrity in it and hold the value in it, because there is a bloody good story being told here from Marlborough.” mistycovewines.com

ADVERTORIAL

Harvesting Grape Returns Wine investment can deliver returns. But how do you add a winery to your portfolio?

There’s a limited amount of viticulture land in and around Marlborough – and, like all land, they’re not making any more of it. That means vineyards and suitable blocks of land with water are in high demand, says Mike Poff, of Bayleys Marlborough. He specialises in selling wineries, vineyards and land for development for viticulture. Shortage of land Poff says demand is driven globally by the popular sauvignon blanc, which dominates domestic wine purchases and makes up 86 per cent of New Zealand international wine exports. Marlborough produces about 70 per cent of the country’s grapes, and Poff says there are only about 3,000 to 4,000 hectares of suitable viticulture land left to be planted. So, how do you get a slice of the vineyard action and make it part of your investment portfolio? What grape variety is best? Marlborough is best known for its strong sauvignon blanc presence on the world stage, Poff says, but there are other varieties new vineyard owners can grow. Poff says there’s strong demand for pinot noir and chardonnay, and he sees lesser-known varieties becoming popular too. But when it comes to return on investment, sauvignon blanc gives the best returns per hectare for profitability, Poff says. What’s available? Poff says returns vary, depending on what the land can produce, and what part of Marlborough

ADVERTORIAL

CLOSING THE GAP If you want to dip your toes into vineyard investment, you don’t have to be an expert. Real estate agent Mike Poff, who is also an experienced viticulturalist, has 25 years of experience in the wine industry, starting as a viticulturist, and then moving into senior industry roles. He became a real-estate agent at the start of 2018, seeing an opportunity to use his experience to help close the gap between vendors and customers. His extensive experience in hospitality, liquor retail and marketing, supported by senior level industry involvement in viticulture and winemaking, means he has a strong understanding of wine and business. He says he’s happy to educate newcomers, so anyone can invest in it easily. Mike Poff is a licenced real estate agent, based in Blenheim at Bayleys Marlborough. Contact him on 027 665 5477 or at mike.poff@bayleys.co.nz

you’re buying in. You could pay anything from NZ$150,000 to NZ$300,000 per hectare. The average size is between 15 and 20 hectares. Some have houses on them, which might suit investors who plan to move to the area, or those who want a rental property. It can be hands on or hands off If you’re interested in buying a vineyard as an investment, you don’t have to do vineyard management yourself.

Above: Real estate agent Mike Poff, of Bayleys Marlborough, is experienced in the wine industry too and is able to explain in simple language about how to invest in a vineyard.

You could buy the property and lease it. Poff says the market lease rate is around 6 to 6.5 per cent, and is another area that Poff specialises in.

Left: Marlborough produces about 70 per cent of the country’s grapes.

Otherwise, you could use a vineyard management company to run the property on your behalf. Certainly don’t feel like you have to go at it alone – and it doesn’t matter if you’re not a vineyard or wine expert. Poff can help connect you to the network of wine industry people. Safeguarding the future In 2008, the New Zealand wine industry was hit hard and the country experienced the largest-ever harvest of grapes, with 30 per cent more crop produced than expected. The industry learnt quickly how important it is to be closely aligned with your supply chain, Poff says. These days, production quantity and quality is much more closely monitored, with wine companies working closely with their growers to secure fruit in line with market demand, Poff says. “People are planting to a plan, they know what their markets require, and the chance of

oversupply is hopefully a thing of the past,” Poff says. Tastes might change All investments come with risks, and one risk of wine-growing is that the popularity of sauvignon blanc might dwindle – people’s tastes may change. “There is potential risk, because we are focused predominantly on one variety,” Poff says. “Marlborough is now referred to globally as the place to grow it. So the risk is certainly not something we would expect to change in the current environment. “There’s still huge international demand for Marlborough sauvignon blanc. We have redefined the sauvignon blanc market, and at the end of the day, no one has been able to replicate the magic from Marlborough.”

BAYLEYS.CO.NZ

INVESTED IN…

Blue Water Wonders Former superyacht captain Paul Keating is known as bit of a character, but when he talks about the Marlborough Sounds coastline that’s home to his eco-themed business, he’s deadly serious. Captain Paul Keating jokes that his average working day is somebody else’s holiday. The head of Picton-based E-Ko Tours spends his days driving one of his company’s boats around the clear blue waters of the Marlborough Sounds. He’ll be spotting dolphins, releasing kiwi into the wild, counting whales, and sharing anecdotes with tourists about New Zealand and its wildlife. Keating says his business is the only one in New Zealand with such a large range of wildlife experience options, from the rarest land and sea birds to the largest mammals, and all with a no-seasickness guarantee.

His life sounds idyllic, and it’s the life he dreamed of when, as a lad, he sailed into Picton and decided he would live there one day. “The region here is so amazing for wildlife and conservation,” he says. “We’ve put a substance here in the water, so that over time everybody gets interested in conservation and saving the animals,” he says with a laugh. The Sounds stretch for 1800 kilometres of coastline. That’s 20 per cent of New Zealand’s coast, yet the whole area has less than 1 per cent of our population. Land once bared by logging over hundreds of years of Maori and European occupation is now regenerating into lush bush, home to many rare and endangered birds. The Sounds’ warm, shallow waterways attract sea birds and marine mammals, who feed on plankton and smaller species of fish, says Keating. You’ll spot dolphins, penguins, vast schools of fish, and sometimes whales. “It’s a good place to bring up your young, and that’s what’s formed the area. This formula has led to a good, biodiverse marine system.” Birdwatchers come to the Sounds from all around

MARLBOROUGH

“It annoyed the captain of the waka, when he got here, so he banished Te Kawau-a-Toru from the waka to stay in the Sounds.” The birds’ survival is amazing. There are only around 631 of them, but the population’s been stable since 1773, when they were counted on Captain Cook’s first voyage. They can swim to 60 metres under water.

“They all want an experience. Our connection to the land, the mana, the ‘mauri ora’, the energy, the link, everyone’s looking for that same thing – an uplifting experience to give you energy you can use in the rest of your life.”

the world to see rare species like the captain’s shag and the orange-fronted kakariki, the rarest bush parrot in New Zealand. “Kakariki cackle like monkeys,” says Keating. “We put 54 on Blumine Island with the Department of Conservation, and they’ve been breeding well on this island. This is pretty much the only place in New Zealand where you can be guaranteed to find one.” Demand from birdwatchers is so great, E-Ko’s birding trips have grown from five a year to about 30-plus. “Worldwide birding is a huge market with New Zealand being a mecca they all want to see. Our location is perfect with rare species, no seasickness and close encounters guaranteed. We have 100 per cent success rate with captain’s shags, one of the five rarest seabirds in the world.” People are fascinated by the legend of the captain’s shag, a story that goes back to the first canoe from Hawaiki arriving in the Marlborough Sounds, Te Rino. The bird was named Te Kawau-a-Toru, or captain’s shag, after PŌtoru, or ‘Toru’, the canoe captain. “The bird’s not a very nice animal,” he laughs.

Keating’s background as a professional skipper, engineer, videographer, and dive instructor is perfectly suited to his role. His jokes and stories charm everyone, and years of working for billionaires on superyachts have taught him what high-net-worth tourists are looking for. This has led him to a focus on exceptional customer service and fun, training staff to a high level to ensure everyone has a unique experience. Making everyone feel special and giving genuine Kiwi hospitality in small groups is the company’s cornerstone of success, Keating says. “They all want an experience. Our connection to the land, the mana, the ‘mauri ora’, the energy, the link, everyone’s looking for that same thing – an uplifting experience to give you energy you can use in the rest of your life.” The sustainable future and conservation messages that underpin E-Ko’s values have helped the business grow over 10 years and average 15 to 17 per cent growth a year. With a proven track record, the company is now planning to expand into land, air, and luxury tours. Keating keeps a high ratio of staff to visitors, so he can offer a quality, intimate experience on land, sea, and luxury tours. For that reason, his boats aren’t big, but they’re friendly. Relationships with Te Papa, the Marlborough District Council and the Department of Conservation open doors to experts, educational resources, and wildlife sanctuaries. Keating sees his brand taking its sustainable conservation messages to other tourist hot-spots, and plans further investment in his business to give more people the chance to experience and learn. “People come here, and they’re rushed and busy. We take 12-25 people on a tour and they’re all individuals – but they leave as a group. They’ve had a group experience in the bush, or on the water that gives them that vitality and energy boost they are looking for. “They realise that we’re all connected, connected to everything. This area is getting better every year. I send people away after a unique wildlife experience with a positive, inspirational look at what could be done for the environment and sustainability.”

Above centre: The Marlborough Sounds is home to Paul Keating’s eco venture. Above and far left: Dolphins and other mammals can be spotted from Keating’s boat, which navigates the stunning Marlborough Sounds.

INVESTED IN…

Valley of Surprises Passion and determination shows in every glass of Spy Valley wine.

“Spy has always been encouraged by the Johnsons to just be different, and concentrate on making great wine.” – Daniel Adriatico

The Spy Valley story started in the late 1990s when financial guru Bryan Johnson ONZM and his wife Jan, bought Timara Lake Lodge in the Waihopai Valley.

“It turned out to be perfect for this cold-climate winemaking,” says Daniel Adriatico, sales and marketing manager. Now the valley is lined with vineyards, he says.

The lodge came with lots of land. Bryan realised he wasn’t a farmer and instead decided to grow grapes for wineries.

It wasn’t long until they decided to start their own wine brand for the future of the Johnson clan. Within a few years the awards started coming in. Spy Valley is now an award-winning winery, with customers around the globe.

At the time, Waihopai Valley was considered too cold, dry and the soil too mineral rich for good vines. The Johnson family disagreed and established the first vineyards in the valley.

They’ve included two-time IWSC NZ’s Wine Producer of the Year, Champion Open Red Wine (2015) at the Air New Zealand Wine Awards, Top 100/Blue Golds for the Spy Valley Gewürztraminer 2015 and Chardonnay 2014, and three trophies at the 2015 UK International Wine Challenge. If there’s a secret to Spy Valley’s success, it would be having an engaged and innovative family at the helm, says Adriatico. “Spy has always been encouraged by the Johnsons to just be different, and concentrate on making great wine. “Amanda [Johnson]’s place overlooks the winery on top of the hill, and we are all quite engaged in each other’s lives. Many of Bryan and Jan’s grandchildren and their friends can be found around the winery and vineyard throughout the year.” Amanda says: “The secret we feel to producing award-winning wines is in our attention to detail and focus on quality and integrity, plus having a great team around us.” Sustainability is another of the vineyard’s core drives, paired with a deep respect for the land. Bryan Johnson says the secret of growing worldclass wines is the passion of the staff. But, points out Adriatico, “That passion for creating a legacy of great wine, started at the top.” spyvalleywine.co.nz

Above Bryan and Jan Johnson set up Spy Valley in Marlborough’s Waihopai Valley.

P R O U D LY MAR LB O RO U G H

Essential Products of

Marlborough Enjoy sampling from the top of the South.

3 1

Marlborough Essentials 4

1. Renaissance Enlightenment

Boom Double IPA 500ml, $8.50, renaissancebrewing.co.nz

2. Prenzel Lemon Rice Bran Oil, 500ml, $19, theprenzelshop.co.nz

3. Uncle Joe’s Freshly Cracked Marlborough Walnuts, 1kg, $29.95, unclejoes.co.nz 4. Cloudy Bay clams, prices

9 6

by the kilogram, cloudybayclams.co.nz

5. Moa Apple Cider, $24.99 a dozen, moabeer.co.nz

6. Taylor Pass New Zealand Reserve Manuka Honey (UMF15+), 500ml, $120, taylorpasshoney.co.nz 7. Whittaker’s Marlborough

Sea Salt and Caramel Brittle in Milk Chocolate, 100g, $5.99, whittakers.co.nz

8. Riot and Rose New World gin, 1920 Rose, $74.95, riotandrose.com

9. Cranky Goat Ltd goat’s

cheese, ‘The Nag’, $10, crankygoat.co.nz

MARLBOROUGH

Cuisine with a View Staff say it’s the best view in Marlborough, and they aren’t far wrong. Brancott Estate restaurant sits overlooking the company’s vineyards, and on a clear day you can see all the way over to the Kapiti Coast. You can even see the spot where the first sauvignon blanc grapevine was planted back in the 1970s. It’s a great place to enjoy lunch, where the chefs design menus to take advantage of the abundance of in-season dining ingredients.

A Gem Within The Vines Relax and soak up the sunshine – we’ve found a spot you won’t want to leave. The Vines Village is an oasis in the heart of Marlborough wine country. Set up by twins Jeff and Tim Fulton, the village is a retail community of food, shops, craft spaces, and wine tasting.

Head chef Bryan Herbert and his team try the wines, work out what ingredients are in plentiful supply, and then use their creativity to come up with winning dishes guests will love. brancottestate.com

Enjoy a tasty tipple at the Whitehaven Cellar Door, followed by lunch at the Vines Village Café & Express Kitchen, sitting outside in the sun, watching the ducks on the nearby pond. Relax and watch the bees in the bountiful herb garden – you won’t want your holiday to end. Then, let the shopping begin. Stock up on New Zealand merino garments, hand-crafted olive oils, tasty local treats, plus arts and crafts from the array of stores at the venue. Learn about the unique history of grape growing in the region, by exploring the wine education display in the foyer. Vines Village won a Bronze Qualmark Sustainable Tourism Business Award in 2018, so you know the area is eco-friendly. Check the calendar before you go, because the Vines Village often hosts great events, like Live Music Sundays. There’s an outdoor theatre, bike hire, and a pirate playground if you’re on a family trip with the little ones. There’s lots of parking, and it’s dog and family-friendly too. The Vines Village will be a delightful discovery during your Marlborough holiday. Add it to your road trip stop-off list. thevinesvillage.co.nz

Local Produce at the Fore Owners of Arbour restaurant, Liz Buttimore and Bradley Hornby, love to showcase Marlborough produce. Not just because the pair believe in serving local food, but because they say it’s the best around. Arbour’s menu changes weekly, but the local produce remains. Think fresh lamb from Flaxbourne Station in the Awatere Valley, and garlic noir, from the Marlborough Garlic Company. Or try fresh goat’s cheese or curd from Cranky, a tiny producer in Linkwater.

“We simply want to make people happy,” Buttimore says. Arbour has also accidentally become a vehicle for charity fundraisers, Buttimore says. “It makes me so happy to look around and see all our neighbours and friends working together for common causes.” Since it opened in 2015, Arbour has picked up a stack of awards, including many ‘best restaurant’ titles, and last year Buttimore picked up the Cuisine Magazine Restaurant Personality of the Year. arbour.co.nz

INVESTED IN…

Cruising Through the Vines Unique tours at Cloudy Bay help showcase the best of the Marlborough region. Imagine cruising through picturesque vineyards in a refurbished Land Rover, with the wind in your hair. It’s a holiday experience you’ll never forget. Cloudy Bay has made your dreams a reality with its private vineyard tour, where you’ll get up close and personal with the area producing some of the country’s top wines. You’ll get a unique one-on-one experience, driving through the vines and up to one of the highest points, where you’ll get a stunning view of the countryside. Learn about the soil and climate, and how it’s shaped the region’s wine making.

When you get back, experience a private wine tasting. You’ll be privately hosted by Cloudy Bay’s experts, and get the chance to try wines tailored to your taste. Try back vintages, wine from the barrel, and learn about what makes Cloudy Bay special. Take your time over one or two hours, and soak up your new knowledge. Then, either opt for a private gastronomic experience, or dine casually for lunch at Jack’s Raw Bar, opening 1 December for the summer season. With a view out to the Richmond Ranges and the spectacular garden, Jack’s is all

about a sense of place. Enjoy a Japaneseinspired menu with fresh Marlborough oysters and salmon and sashimi, all washed down with a drop of Cloudy Bay’s finest. Cloudy Bay offers several unique tours, which can be combined for a full or multiday experience exploring the Wairau Valley. The cellar door is open daily from 10am to 4pm. Jack’s Raw Bar is open for lunch from 11.30am. Book today at privateexperience@cloudybay.co.nz cloudybay.co.nz

FROMM AD

Invested In... Hawke’s Bay For advertising enquiries, contact jenaia@junoinvesting.co.nz

Coming Autumn 2019

MARKET INSIGHTS

The Ruff Guide

What’s the Future of the NZ Dollar? New Zealand’s wait-and-see approach on interest rates will have big implications for our currency, says trader Steve Ruffley.

Worldwide, there’s a lot happening. The US is in a trade war. Brexit is gripping the UK and European Union. China is changing its one-child policy, and the Saudis are launching the world’s largest wealth fund.

The New Zealand dollar used to look like a safe pair of hands in an uncertain world for diversification, but we’re now in global trading terms ‘risk-on’. The focus now is on returns and which currency offers this.

So, what’s been going on here in New Zealand? Not much really, and that could have a big impact on our currency value.

I don’t believe it will be the New Zealand dollar. Politicians will tell you that a low currency rate is good for the economy. After all, New Zealand is a net exporter. Its main industry is tourism. The more tourists coming in, the more money too.

We’re missing the boat While the rest of the world is moving on, our wait-and-see approach on how the economy and currency price will fare has attracted little attention. The US Federal Reserve says there’s one more interest rate hike to come this year, and potentially three in 2019. The UK will undoubtedly raise rates again the next six months, and the EU has suggested a rate rise in late 2019. But what about the Reserve Bank? “Rates could go up or down,” it says. If rates are not going up, they’re staying the same, or for the more speculativelyminded, they’re probably going down. The global markets see and hear everything. They also bet on everything. It’s all about growth The battlefield for currency markets has long been about expected growth. The New Zealand dollar had a short-lived rally on news of a 1 per cent growth in Gross Domestic Product (GDP) in the June quarter.

think a major currency speculator would bet on? With the Reserve Bank giving very little idea on its plans to increase the value of the New Zealand dollar, speculation and market forces will take over. Most experts say the New Zealand dollar versus the US dollar will stay in a range between 0.64000 and 0.69000. The GBP versus the New Zealand dollar will await the Brexit outcome.

But a low currency rate means the cost of imports go up. Food, petrol, and spending money for travel overseas will all cost you more.

And me? I see a fall in the New Zealand dollar versus the US dollar to 0.59719, and a rise in the GBP versus the New Zealand dollar to 2.05706 in the next six to 12 months.

To trade the New Zealand dollar, you have to ask which currency will be worth more in six, 12 or 24 months from now? What will currency speculators buy instead?

So, let’s wait and see.

The pound will be hot

Brexit: A combination of the words Britain and exit, to form Brexit. It’s a shorter way of saying the United Kingdom is leaving the European Union next year, after a vote took place in June 2016. Diversification: Diversifying is about having a wide variety of investments, which reduces your risk. It’s about not having all your eggs in one basket. Gross domestic product (GDP): GDP is a measure of a country’s market value. It covers all goods and services produced within a timeframe and can be used to compare nations. Speculator: Someone willing to take risk over short periods, usually by betting on short-term price movements, through things like trading, rather than buying and holding quality companies.

The obvious one is the British pound (GBP). There was a noticeable drop in the GBP versus the New Zealand dollar after the unexpected Brexit vote. That drop will partly be made up or, over time, maybe even erased. But here? There are 4.8 million people in New Zealand. The country has cut immigration, placed restrictions on foreigners buying houses, has a very modest 1 per cent GDP growth, and stalling business confidence. Compare that with London. Which do you

Definitions

SUMMER 2018

JUNO 81

Stocks On The Move Mike Ross, of Pie Funds, provides the backdrop to the rises and falls of four stocks on the Australian and New Zealand exchanges.

SMALL CAP

PWR Holdings Limited

Scottish Pacific

[ASX:PWH]

[ASX:SCO]

Business description

PWR Holdings is a Queensland-based company that designs, engineers, produces and sells customised aluminium cooling products. The products are used in motorsports, automotive original equipment manufacturing, automotive aftermarket, and other emerging technologies. It has operations in Australia, Europe, and the US.

Scottish Pacific provides working capital solutions to small and medium-sized enterprises (SMEs) in NZ, Australia, and the UK. This includes invoice discounting, factoring and trade finance. The company has been around for more than 25 years and was listed on the ASX in 2016.

Movement

The stock increased 16 per cent from AU$3.74 on 19 September to AU$4.32 on 1 November.

PWR’s share price has surged from AU$2.90 prior to the company’s 2018 financial year (FY18) result to AU$3.70, a return of 28 per cent. It paid an AU6.2 cents dividend in September.

What’s happened? In addition to reporting a strong FY18 result with 8 per cent revenue growth and 19 per cent growth in net profit after tax, the company has also released further details about new growth markets for PWR technology and products.

Factors to consider To date, most of PWR’s earnings have come from the motorsports segment. Since its Initial Product Offering (IPO) in 2015, PWR’s management has been optimistic about growing the company’s presence in other markets, including Original Equipment Manufacturer (OEM). However, these opportunities have yet to contribute earnings in a material way. Recent disclosures about specific OEM opportunities, including timing details, indicate that these opportunities are closer and that PWR is growing its addressable market. With the stock now on a price-to-earnings ratio of more than 25, management will need to execute on opportunities ahead.

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Movement What’s happened? Affinity Equity Partners, a private equity firm, agreed to acquire Scottish Pacific for AU$4.40 per share in cash, representing a 27.8 per cent premium to the company’s one-month, volume-weighted average price.

Factors to consider Unless there is a competing bid, the shares are unlikely to trade above the AU$4.40 takeover price. Shareholders will vote on the deal on 30 November. The current share price implies the deal will probably go ahead (in which case the shares would likely fall).

MARKET CAPITALISATION

AUSTRALIA/NEW ZEALAND

UNITED STATES

NANO CAP

Less than AU$25 million

Less than US$50 million

MICRO CAP

AU$25 million–AU$150 million

US$50 million–US$300 million

SMALL CAP

AU$150 million–AU$1 billion

US$300 million–US$2 billion

MID CAP

AU$1 billion–AU$5 billion

US$2 billion–US$10 billion

LARGE CAP

AU$5 billion–AU$50 billion

US$10 billion–US$100 billion

MEGA CAP

Greater than AU$50 billion

Greater than US$100 billion

Past performance is not an indicator for future performance. This article is not intended to be financial advice. All prices correct as at 2 November, 2018.

Down

MID CAP

Corporate Travel Management

Super Retail Group

[ASX:CTD]

[ASX:SUL]

Business description

Corporate Travel provides travel management solutions for corporate customers in Australia and New Zealand, North America, Asia, and Europe.

Super Retail Group owns and operates a portfolio of retail brands across Australia including Supercheap Auto, Rebel Sports, Macpac, and BCF.

Movement

After reaching highs of almost AU$33.50 in September, CTD has fallen 33 per cent to close at AU$22.32 on 1 November.

SUL shares have fallen 21 per cent from AU$9.35 on 23 October to AU$7.35 on 1 November.

What’s happened?

Corporate Travel has found itself in the crosshairs of an Australian hedge fund with a large short position in the company. This means the fund will profit if CTD shares depreciate. The hedge fund released a 176-page report on the company that identified 20 ‘red flags’ questioning the company’s financial statements, including its technology IP among other issues. The hedge fund also travelled around the world to visit CTD’s offices and found many of these appeared empty ‘phantom’ offices.

At its AGM on 24 October, Super Retail Group provided a trading update that showed slowing, albeit still positive, same-store sales trends across all of its brands except Macpac, which accelerated. The company also stated that there are “some signs that the retail consumer is being more cautious”. This commentary, the slowdown in sales momentum, and the resignation of the company’s longstanding CEO, caused the sharp decline in the share price.

Factors to consider

While CTD released a detailed response to the market, the hedge fund’s analysis has clearly ‘spooked’ the market and caused investors to question the company’s financial reporting and the integrity of the management team. CTD has become a market darling in recent years and has traded at a high valuation – its price to earnings ratio has averaged 28 over the last year. When market darlings suddenly find themselves out of favour, they can fall a long way.

While brands are currently experiencing positive sales momentum, the fact SUL is a mature retailer with a limited store roll-out means it is more exposed to any downturn in the economy and consumer spending. This makes the company’s commentary about increasingly cautious consumers concerning. Especially in light of a declining housing market on the east-coast of Australia, and other rising living costs.

SUMMER 2018

JUNO 83

Snapshot A glance at events affecting the global economy (As at 6 November unless stated otherwise)

Italy

US In October, the Dow Jones stock market had its worst month since the Global Financial Crisis of 2007-08, losing 7.1 per cent.

Italy is deep in debt and on the edge of a recession that could destabilise the European Union.

Brazil In Brazil, a right-wing politician seen by many as the â&#x20AC;&#x2DC;Trumpâ&#x20AC;&#x2122; of the tropics, Jair Bolsonaro, has been elected president, making many worried about the future of its indigenous people.

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UK Financial firms worried about big European customers not being able to use their services if Brexit goes badly. As a result, they are shifting their operations elsewhere in Europe.

MARKET INSIGHTS

China In China, the trade war with the US is starting to bite, affecting manufacturing and hitting the value of the currency, the yuan.

Turkey Inflation in Turkey has soared more than 24 per cent this year and the lira is dropping dramatically in value.

Japan A series of earthquakes and typhoons hit Japanâ&#x20AC;&#x2122;s GDP in September and household spending dropped 1.6 per cent year-on-year.

Sri Lanka The president of Sri Lanka sacked the prime minister, which has led to protests and deaths.

SUMMER 2018

JUNO 85

YO U R I N V E S T I N G

Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we’re going as a nation.

Hiring and growing Some other economic indicators are showing a more sombre mood, says ANZ’s Business Outlook Survey. This includes how firms expect their own businesses to go, and hiring and investment plans. But the good news is that unemployment has fallen to 3.9 per cent.

Down, but not out A huge 37 per cent of firms are feeling downbeat about our economy, says the ANZ Business Outlook Survey. That’s as bad as it got around the 2008-09 Global Financial Crisis. Business confidence is a poor economic indicator. There’s only a weak link between confidence and economic growth. Also, businesses tend to be more upbeat under National as opposed to Labour. Business confidence was low between 2000 and 2007, but the economy still did well.

Under the pump Consumer confidence has started to soften as petrol prices siphon dollars out of consumers’ wallets.

Thumbs up

What to watch

Firms are still paying the bills, says Xero’s Small Business Insights. It’s when firms start paying more slowly that you realise the economy has hit an inflection point.

There is a lot of uncertainty over government policy. The global scene is worrying, especially the build-up in debt across emerging market countries (like China). Our economy is also late in the business cycle. This doesn’t mean the expansion is about to end. But let’s be more cautious, after what was a good run.

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MARKET INSIGHTS

Change is the new normal, and I think we’re being too complacent about it. The fourth industrial revolution is hitting us at light-speed.

43% 36%

Air New Zealand’s now serving a plant-based meat burger. Banking is being shaken up. Look out for climate change, staffing challenges, shifts in government policy, calls for responsible investing, and more social media madness.

Firms expect the pace of change to slow. That’s not going to happen. The pace of change is going to speed up. Kiwi businesses have that good, old ‘she’ll be right’ attitude. I think that’s playing with fire.

Buckle up

of firms have seen ‘a lot’ to ‘a fair amount’ of change in the past two to five years.

of firms are expecting to be disrupted over the coming year. * Suncorp’s Business Success Index

Wellbeing

Grumpflation

Wellbeing is the latest buzz-word in Wellington. The 2019 Budget is going to be a ‘wellbeing Budget’.

‘Grumpflation’ is here. That’s the combination of slowing growth and rising costs. Businesses are feeling it, and you’ll be feeling it in your house, too.

Wellbeing is about measuring the social side of the ledger and moving past financial indicators.

The latest inflation figures still showed inflation as low, but it’s rising. What’s going up? Prices, that’s what.

But we still have a massive way to go on all of those things though. Above average is not necessarily always that great.

This is what’s siphoning money out of people’s pockets: Rents •• Housing costs •• Electricity •• Insurance •• Petrol prices.

We rank below the Organisation for Economic Co-operation and Development (OECD) average in wellbeing for incomes and wealth.

The Reserve Bank is not going to be spooked into lifting interest rates, but these everyday items are the ones that you notice and that eat into your pay packet.

To lift those, we need to lift our game by being more productive and create more value in our goods and services.

Inflation is a thief that steals your savings, so we want that to stay low, and the Reserve Bank will make sure it does.

I admire the spirit of it. New Zealand ranks above many developed countries for most wellbeing indicators, including the environment, health, and housing.

••

A lower New Zealand dollar helps exporters, but hurts importers and consumers.

••

There’s pressure for wages to move up. This is a cost businesses will try to get back by putting up prices.

••

All data correct as at 7 November 2018

Why you’ll still feel the pinch Transport costs more, due to higher oil prices, a lower dollar, and fuel taxes.

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JUNO 87

YO U R I N V E S T I N G

Nobody Wins a Trade War In the past, trade wars have had huge worldwide impacts. Victoria Harris, of Pie Funds, assesses the latest US-China trade war and explains what it means for investors.

When Donald Trump won the US election in 2016, he vowed to ‘Make America great again’. Since then, Trump started a war with one of the US’s oldest trading partners, China. The US-China trade war started earlier this year after the US put tariffs on laundry machines and solar panels coming from China. Since then, the trade war has rapidly intensified. The costs so far The initial two rounds saw tariffs put on US$50 billion worth of goods from China. But then it escalated and in the third round, which took effect on September 24, we saw tariffs put on goods worth US$200 billion, affecting US$250 billion worth of goods since the trade war started. China hit back at the US, saying it would impose tariffs on up to US$60 million worth of US goods, which was a rather meaningless retaliation. Now Trump has warned even more tariffs could be on the way. If he decides to go ahead with a fourth round, it would mean all of China’s exports to the US would be subject to the tariffs. Who are the winners and losers? Contrary to Trump’s belief, no one wins in a trade war. The losers list is long and widespread. Those negatively affected include: •• Asian export economies. There are many – South Korea, Taiwan, Vietnam, and Malaysia are all vulnerable. These countries export goods, such as machine parts and components for communications equipment, which are used to produce items that China then sells to the US. •• US farmers. In particular, soybean farmers will suffer. Exports of soybeans have nosedived since China’s retaliation of tariffs, leaving many US farmers struggling. •• Everyday Americans. Some of the top imported products into the US from China are furniture, clothes, toys, and

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electronics. These will become more expensive. Those less likely to be affected by the trade war include: •• Domestically focused businesses, or those that don’t export. These companies are immune to the tariffs, and they may even benefit, because companies might be forced to source more products locally. •• Service or software businesses. These businesses don’t rely on the flow of products across borders, so they’ll avoid costly tariffs in either country. •• Countries exporting to the US instead of China. These might include Bangladesh, Turkey, or Vietnam. Garments from China exported to the US will quickly become more expensive. So, US companies will look for cheaper sources of manufacturing, in countries like Bangladesh and Vietnam. Since both countries are now looking to break these trade ties, new countries stand to gain market share. Demand distributed elsewhere In most cases though, overall global demand doesn’t really change during a trade war. It’s just reallocated. So, a reduction in demand for steel from China might result in an increase in demand for steel from other regions. The major beneficiaries of a trade war (or the less affected) are the companies and countries picking up this slack. When there’s a loser, there’s usually a winner on the other side. But with the US and China being the largest economies in the world, it makes it difficult for smaller nations to fill this supply gap efficiently. What’s happened on the share market? Considering China is a net exporter to the US, it’s borne the brunt of the impact. This has been reflected in the region’s share market, which is suffering. The Shanghai Stock Exchange Composite Index (SHSEC) has fallen 20 per cent since the beginning of the year. The S&P 500 had

The new tariffs will change the economic fortunes of many nations in the world.

YO U R I N V E S T I N G

The new tariffs will change the economic fortunes of many nations in the world. risen 1.9 per cent (as at 4 November). That’s an approximate USD$720 billion loss for the Chinese economy. This has led to a stark difference in company valuations between the two countries, as investors pull money out of China. The Chinese equivalent of the FANGs (Facebook, Amazon, Netflix and Google) are called the BATs, referring to the tech companies Baidu, Alibaba, and Tencent. The BATs are trading at a 23x forward price-to-earnings ratio, versus a 54x for the equivalent US group. That’s over a

50 per cent discount. And with a country that’s triple the population size of the US, the BATs earnings growth rate should be stronger, and for longer. What’s the future?

Definitions

The effects of a trade war are many and widespread, particularly when they’re between two superpower economies. These tariffs are not, yet, on all China exports either, but the impacts have been felt significantly already.

Forward price-to-earnings ratio: Investors look at this ratio to help them decide to what extent the future earnings of the company are captured in the price. The lower the ratio, the more undervalued the company might be and, theoretically, the more likely its price is to increase.

The new tariffs will change the economic fortunes of many nations in the world. The trade war will have several side-effects that are difficult to quantify, and which were not thought through by the Trump administration. Recent talks between the nations leaders seem to indicate they are moving in a more positive direction. However, I predict that this US-China trade war storm is already in full swing and will not be resolved quickly.

Standard & Poor’s 500 Index (S&P 500): A market capitalisation-weighted index of the 500 largest US publicly traded companies, across all industries, by market value. Tariff: Tariffs are taxes or charges imposed on imported goods and services. Trade war: A situation where countries try to damage each other’s trade, usually through tariffs or quota restrictions.

Correct as at 4 November 2018.

PATHFINDER GLOBAL WATER FUND PATHFINDER PATHFINDER

11.5% 11.5% 11.5% GLOBAL GLOBALWATER WATERFUND FUND

PER ANNUM*

PER PERANNUM* ANNUM*

* A* A verage annual return calculated over 7 years to 30 September 2018 after fees and before verage annual return calculated over 7 years to 30 September 2018 after fees and before * Average annual return calculated over 7 years to 30 September 2018 after fees and before tax. Pathfinder Asset Management Limited is the issuer of units in the Global Water Fund. tax. Pathfinder Asset Management Limited is the issuer of units in the Global Water Fund. tax. Pathfinder Asset Management Limited is the issuer of units in the Global Water Fund. Visit path.co.nz or call 0800 PATHFINDER for a Product Disclosure Statement. Visit path.co.nz or call 0800 Visit path.co.nz or call 0800 PATHFINDER for a Product Disclosure Statement. PATHFINDER for a Product Disclosure Statement.

The Race To 5G Soon 5G and wider internet connectivity will change our world. Chris Smith, of CMC Markets, looks at the race to offer the fastest internet speeds and products, and how to invest in it.

With the rollout of ultra-fast broadband still under way in New Zealand, and 4G mobile only available in recent years, it’s hard to think ahead to the next era of internet connectivity. But 5G is about to rock our world. The last jump, from 3G to 4G, didn’t feel that impressive, but it was the start of a huge industry surrounding the Internet of Things. These smart technologies will mean our fridges can talk to us and order smart home products, and we can stream the next Rugby World Cup or F1 from our devices despite large audiences using data. Consumers will soon realise the difference 5G will make. Download streaming speeds will leap, even at peak times, and it will boost the power of our phones. An almighty battle for investment has started as Chinese and US telecommunications companies race to be the first to offer the network. Now some governments, like Australia and the US, are actually blocking Chinese firms Huawei and ZTE from accessing their 5G networks, due to security concerns, or to reduce competition.

download a full-length movie in just a few seconds. Consider the impact on television and virtual gaming, downloading sports streaming in the blink of an eye, and the resulting huge growth in mobile apps. Already 5G networks are already being rolled out across a number of US states and are expected to launch across the world by 2020. They’ll work alongside existing 3G and 4G technology to provide faster, better connections that stay online no matter where you are. In New Zealand, Spark has already switched on its own test site, in partnership with Huawei for technical and equipment support. A trial is also taking place at Vodafone. China’s mission to win the 5G race The race is now on between China and the US over who’ll be the leader in nextgeneration wireless mobile technology.

5G is the next step of cellular networking after our current 4G network.

China is the world’s largest mobile market, with more than 700 million internet users, likely to grow to one billion. It’s determined to take the lead, and is backing its plan up with billions of capital as a national priority.

With 5G, network speeds are expected to be up to 100 times faster than our current wireless networks, and the next evolution will be even more impressive. You should be able to

It’s already invested in hundreds of thousands of cell sites, in competition with US telecommunications firms’ infrastructure development.

What is 5G?

With 5G, network speeds are expected to be up to 100 times faster than our current wireless networks, and the next evolution will be even more impressive.

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YO U R I N V E S T I N G

Streaming services which will benefit from speed – Netflix, Amazon, e-sports platforms and gamers.

There are big investment opportunities in Internet of Things, or IoT, which covers everything that is and will be connected to the internet.

••

The US was expected to auction off the high-frequency spectrum for 5G services in November to the major players and US President Donald Trump has announced a special taskforce for its spectrum strategy.

The bigger story will be the battle for dominance between countries, as 5G becomes a political football and countries block each other’s development of infrastructure and technology.

Telecommunications firms are already investing there. Verizon has spent more than US$120 billion on its network since 2000, to provide 98 per cent 4G coverage, and AT&T has poured billions into its network, so that the first devices will be on new networks by 2019.

However, government satellite and monitoring systems will also benefit, making privacy and data security a challenge.

However, the Standard & Poor’s 500 Index ratings agency has warned that wireless firms planning 5G services could wait five to 10 years to recoup their investment.

Definitions

Internet of Things There are big investment opportunities in Internet of Things, or IoT, which covers everything that is and will be connected to the internet. We can already see the effects in Google Home pods, driverless cars, Amazon Echo devices, and wireless security systems. Firms that will benefit: •• Local listed telcos and firms that lay the cables and provide networks – like Spark and Chorus. •• Big US and Chinese telcos – Verizon, AT&T, Broadcom, T-Mobile and Huawei. •• Companies developing uses for the Internet of Things – Google, Amazon, Facebook, Alibaba, IBM, Microsoft, and Apple. 92 JUNO |

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The outlook Most people will welcome lightning-fast connection speeds for a better and buffer-free experience when you’re streaming sports or watching Netflix.

4G: 4G is the fourth generation of broadband cellular network technology, succeeding 3G. Internet of Things (IoT): How computing devices embedded in everyday objects connect to the internet, enabling them to send and receive data. Standard & Poor’s 500 Index (S&P 500): A market capitalisation weighted index of the 500 largest US publicly traded companies, across all industries, by market value.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

MARKET INSIGHTS

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MARKET INSIGHTS

Animal Fans Have Their Say Animal cruelty has leapt to the top of a list of investments to avoid. John Berry, of Pathfinder Asset Management, discovers there’s been a change in social values.

When a recent survey showed that nine out of 10 Kiwis believe animal cruelty should be avoided in investment portfolios, it caused a shockwave through the New Zealand investment industry. Rather than tobacco, gambling or landmines, animal cruelty was number one in survey of what New Zealand investors don’t want in their portfolios. Back in 2016, it was KiwiSaver schemes holding shares in tobacco companies and landmine manufacturers that caused outrage. Removing landmines and tobacco reflected the state of play back then, but social values continue to move on. Now animal cruelty tops the list, followed by human rights abuses and labour rights abuses. Until now, the focus has been on tobacco (now 4th), gambling (5th), military weapons (7th), adult entertainment (11th) and alcohol (14th). The survey results aren’t wrong – a recent Australian survey placed similar importance on animal welfare. We’re seeing a change in social values. Approaches to animals vary Very few fund managers mention animal welfare in their fund documents, and approaches vary. At least one manager limits their animal-related exclusions to companies engaged in whaling. This is a sensitive topic in New Zealand. But only a handful of small companies are involved in whaling, so there’s little effort needed for fund managers to avoid them. Another manager screens out genetically modified organisms (GMO), but then confuses their position by allowing GMO research and development.

If, as an investor, you’re concerned about animal welfare, look closely at the companies held in a fund and decide whether the fund manager’s policy meets your personal ethical standards.

Another supports animal welfare by excluding factory farming and livestock exports. This approach still allows animal testing, fishing, or farm-related companies.

Options to replace milk and meat are now thriving growth businesses. There are plant-based products, and new products that were science fiction a decade ago. They’re an ethical choice and can make a solid contribution to reducing the environmental impact of food production. It’s not as easy as it sounds to set up a global equity fund with strict animal welfare criteria, like avoiding animal products and animal testing. Pharmaceutical, cosmetics, and beauty companies are involved in animal testing, and animal products are widely used by many food and clothing businesses. Few options for animal welfare There are surprisingly few investment options focusing on animal welfare that would be suitable for someone wanting to invest consistently with vegetarian or vegan values. One option in New Zealand is Pathfinder’s Global Water Fund, which recently started screening for animal welfare, animal testing, and animal products. The fund, which has been operating since 2010, held just one company of concern, involved in testing water and livestock. It was removed. The fund invests in companies working to solve some of our planet’s most pressing issues, like water pollution, water access, and water supply sustainability. The fund now avoids issues around animal cruelty and animal testing. The resulting vegan-friendly investment fund hit the news as a New Zealand first. There’s no one answer It’s important to remember that blending ethics and social responsibility into investing is very personal – there’s no single right answer.

This highlights that if, as an investor, you’re concerned about animal welfare, look closely at the companies held in a fund and decide whether the fund manager’s policy meets your personal ethical standards.

Investors may want to take animal welfare into account for many different reasons. They may be concerned about environmental degradation, climate change and future food shortages, as the world’s population is expected to grow to nine billion by 2050.

This surge in animal welfare concerns is a global phenomenon, reflected in huge growth among vegetarians and vegans. One study found 15 per cent of the UK population is vegetarian or vegan.

Or they might just love animals. It may sound unconventional, or even bizarre, but investors should expect to hear a lot more in future about how animal welfare and cruelty affects their savings.

Look closely at the companies

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Breaking Up is Never Easy It’s a really messy divorce, as they often are. More than two years since the UK voted to leave the EU, it’s still unclear how the split will happen and what the fallout will be. Andrew Kenningham, of Capital Economics, looks at the options.

In June 2016, the British voted by a narrow majority to leave the European Union (EU), after 43 years of membership. The vote itself said very little about what the future relationship between the UK and the EU should be. Now, just five months before the UK is scheduled to leave, in March 2019, a range of outcomes are still possible. In name only or clean break? At one end of the spectrum, there’s a chance that the UK’s trading arrangements with the EU might stay almost unchanged. This possibility is often referred to as ‘BRINO’ or Brexit In Name Only and it would leave the UK in, or close to, the European Single Market. In a sense, this would be like a divorced couple choosing to live in the same house. Goods, money, and people would continue to move freely between all 28 countries. There’d be no border controls and few restrictions on migration. At the other end of the spectrum, the UK may leave the EU without any trade agreement at all.

Britain could even end up having a second Brexit referendum, which could call off the whole divorce from the EU.

In this scenario, exports and imports would be subject to the common European tariff, just like trade between the EU and countries such as the US, Australia, or New Zealand. Trucks would need to be checked at every port and at the border between Northern Ireland and the Republic of Ireland. And the right to migrate from the UK to other EU countries would be restricted. This would be a huge change because there are 3.8 million non-British EU citizens

living in the UK, and 800,000 British citizens living on the continent. And there are at least a couple of options in between. Political uncertainty To add to all of this uncertainty, the British political outlook is becoming more and more unstable. Both the Conservative Party, which is in power, and the opposition Labour Party are openly divided over how closely aligned they want the UK to be to the EU after Brexit. The parties have witnessed intense internal disagreement about the UK’s post-Brexit future over the past two years, little of which has been resolved. Prime Minister Theresa May is vulnerable to a challenge from within her own party. As her Conservative Party lacks a majority in parliament, there could be a general election. If there is, the outcome would be highly uncertain. Britain could even end up having a second Brexit referendum, which could call off the whole divorce from the EU. That said, opinion polls predict another close result, which could lead to even more confusion. All of this uncertainty has taken a toll on the economy. The UK is the only G7 country where economic growth slowed between 2016 and 2017, and it has continued to do poorly this year. Life after Brexit There’s little doubt that leaving the EU will adversely affect the UK, but how big the cost will be depends on the nature of the divorce.

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Itâ&#x20AC;&#x2122;s also possible that in the very long term, the UK might apply to rejoin the EU, after trying life outside it.

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MARKET INSIGHTS

If the UK stays in a customs union, it would still be easy for retailers to trade across borders, and for manufacturers to stay closely integrated with the rest of Europe. Brexiteers argue that there could be big benefits from leaving the EU. And it’s true that payments to the EU budget would be smaller, and that EU red tape could be slashed. The UK would also be free to set up new trade relationships with countries such as China, India, and the US. However, these benefits cannot be guaranteed. Any budget savings may be outweighed by the costs to the country of slower growth. The government has no specific plans to remove EU regulations, and many of them are popular. And it may be impossible to reach meaningful trade agreements with the US or the other leading emerging economies. What this means for investors If there’s a smooth exit, share markets might do quite well in 2019, and the British pound, which hasn’t recovered from its slump after the referendum, could recover.

There’d be a ‘deal dividend’. But, if the UK leaves without a trade agreement, the stock market and sterling may tumble. The fall would be particularly large if an acrimonious divorce were followed by bottlenecks at the borders, due to customs checks – and firms may even have to temporarily stop production. That said, policymakers would probably cushion the blow by cutting taxes and lowering interest rates, which would at least help bond markets. So much for the short-term impact. The long-term implications are even harder to predict, but it’s difficult to see any good news for the UK as long as the EU continues in its present form. It’s also possible that in the very long term, the UK might apply to rejoin the EU, after trying life outside it. US professor of psychology Nancy Kailash says around 6 per cent of divorced couples eventually decide to remarry, although it’s not known how happy they are second time around.

Definitions Brexit: A combination of the words Britain and exit, to form Brexit. It’s a shorter way of saying the United Kingdom is leaving the European Union in 2019, after a vote took place in June 2016. G7: The G7, or Group of Seven, consists of the seven largest economics in the world. It includes Canada, France, Germany, Italy, Japan, the UK, and the US, representing 58 per cent of global net wealth. Tariff: Tariffs are taxes or charges imposed on imported goods and services.

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You don’t own debt. Debt owns you. When we look at companies to invest in we don’t like to see too much debt. It can mean they’ve been doing some tricky things to look better short-term, but it certainly means they have fewer choices if the wind changes. We look for sustainable fundamentals like cash burn and growth rates, as we’ve seen highdebt companies end up distressed, diluted or missing their potential. Low debt can also mean better returns, as many of our clients have found in their personal finances; careful choices, like paying down the mortgage, have meant they’ve been well placed to now diversify and invest into our managed funds. This is one of five principles that have helped us achieve some of the best returns in the business. Find out the other four at piefunds.co.nz/five Do get in touch to come by for a cuppa. Visit us in Takapuna, Havelock North or online.

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