We probably can’t even think about comparing ourselves with America, where the artificial intelligence (AI) boom makes the numbers barely believable. In the past year, United States pretax revenue has grown by 30%, or US$1.2 trillion. And, as the Economist recently noted, American markets have digested the largest-ever IPO (SpaceX), equity raise by a public company (Google) and foreign firm (SK Hynix), as well as the biggest private-funding round (OpenAI), private-debt deal (Broadcom) and bond issue in history (Amazon). Anthropic is preparing an IPO for after the mid-term elections with a target valuation of up to US$2 trillion – or, put another way, many, many times our nation’s entire GDP.
It’s hard not to be awed. But I come back to it: what would we need to do to have even an ounce of this business success in our local capital markets?
The problem isn’t ideas or amazing start-ups. In Auckland, which I know best, the Icehouses and Outset Ventures (where Rocket Lab itself was birthed) have a heap of great enterprises looking for capital. Higher up the chain are the Halters, Tracksuits and Crimsons: remarkable successes. But we need more of them as the third pillar of our economy, alongside farming and tourism, and more of them going on to list in New Zealand.
As Fran O’Sullivan said last weekend, “more billionaires are not an economic strategy. More globally successful companies are” and “New Zealand’s challenge is to help more businesses make the leap from promising local company to global competitor.”
Let me say it again: a critical missing ingredient is capital.
Some good financing is happening. Jamie Gray’s Herald piece on private credit and the likes of Private Capital Group shows that. But banks still dominate about 95% of the market, and our big Australian ones are conservative in their financial practices. Loans for property beat business funding every day of the week.
Earlier this year, the OECD’s report on New Zealand’s economy identified an acute “structural shortage of domestic growth-equity supply in the NZD5-50 million range”, forcing many Kiwi companies offshore earlier than optimal to raise money. It said New Zealand should “consider making minority Crown investments in a Business Growth Fund” or “convening a growth-equity (GE) and venture-growth (VG) fund of funds [and] encourage KiwiSaver providers and other institutional investors to allocate small shares of their portfolios to these funds.”
Last year’s parliamentary inquiry into banking said something similar: we need to consider new lending models.
One fact to celebrate is the well over $100 billion we’ve accumulated in KiwiSaver. But while challenger brands are dipping their toes into local venture investments, the Aussie banks’ funds again dominate, and their risk appetite is limited.
What if the settings ensured more KiwiSaver funds invested more locally? Today KiwiSaver remains underdone in growth and private-asset categories. The argument against is that we don’t want funds taking undue risks with New Zealanders’ money, but deft changes could surely put us in a sweeter spot: safe and local. The new and very successful Active Investor Plus, or golden visa, funds have helped. But could the settings be further enhanced to produce more local productive investment and thicker capital markets?
On the NZX specifically, those in the know tell me we need reform of product disclosure statements, accommodative tax changes and, more fundamentally, a Financial Markets Authority (FMA) focused on promotion rather than over-regulation, alongside an NZX with a more streamlined, lower-requirement listing regime.
At the small to medium enterprise (SME) end of town, the gripe has always been that businesses struggle to get capital from the large commercial banks and, when they do, must put up every personal asset they hold – usually the house – as guarantees in a way those higher up the food chain do not. I detect this complaint is growing.
I’ve already noted the pleasing growth in private capital, but leaving that subsector to grow organically isn’t enough. Some in our business and political classes say we should keep backing Kiwibank, which has a stronger track record on SME lending than others – and I certainly don’t push back on that.
Doing a little homework on SMEs and capital, it’s instructive that countries we often turn to for policy ideas have recently established SME growth funds – or banks, if you will – to step in where the private sector won’t, just as the OECD suggests we consider.
Australia, Ireland, Britain and Canada now all have Business Growth Funds to help scale SMEs with opportunities not well served by venture capital, traditional private equity or bank lending. The model tends to combine government funding with a group of shareholding banks that co-invest on a commercial basis.
In Australia, for example, the Government has put in A$100 million and six banks a further A$440m. In this public-private partnership, both sides guarantee a portion of the risk should a business fail. The policy aims include reducing reliance on personal assets such as the family home and encouraging lending based on the viability and cash flow of growth companies without significant assets.
The British story is much the same, only with bigger numbers: GBP$5 billion helping more than 650 businesses grow since 2011. Why wouldn’t we try this here? NZ$100m from the Government, with the very same banks doing it in Australia putting in comparable amounts on this side of the Tasman. Kiwibank and others may also want to throw into the kitty for fear of missing out.
This piece certainly isn’t intended as a beat-up on big banks. If anything, the Government should be looking at the risk-averse capital frameworks in place here and changing them.
I’m also conscious that I’m bringing a set of problems around access to capital, and some ideas, but not necessarily fully formed answers.
I’m not the expert, and certainly not the brains trust here. The Government has hundreds of policy folk who, after November 7, should turn their minds in disproportionate numbers to these points while we all wait for a Government to form. Because if we had better money flowing to our SMEs, start-ups, bigger businesses and potential next IPOs, we could have many more Rocket Labs – and, yes, more billionaires to go with them – but, more importantly, more jobs, growth and wealth generally.
Simon Bridges is the chief executive of the Auckland Business Chamber and was the leader of the National Party from 2018 to 2020. He has also served as the Minister for Transport, Economic Development and Communications. He is the chair of the NZ Transport Agency Waka Kotahi and has worked as a senior Crown prosecutor in the Tauranga District Court and the High Court at Tauranga.
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