Ultra-conservative advice approach may harm junior boards
Advisers’ concerns about their regulatory requirement to put their clients in “appropriate” investments may be constraining growth in junior boards, a report on the equity market suggests.
Friday, February 17th 2017, 6:00AM 3 Comments
by Susan Edmunds
Chapman Tripp this week released a report on the New Zealand equity capital markets, which said the drop in the number of NZX main board issuers seen in 2016 was likely to continue this year.
Partner Rachel Dunne said there were only three new IPOs last year and a lot of companies bypassed the NZX in favour of private sales or an overseas exchange.
She said that was likely to continue and become the “new normal”.
According to Dunne, both the NZAX and NZT markets had trouble developing a strong pipeline of new issuers.
That might lead the NZX to decide the New Zealand market was too small to sustain junior boards, especially with the early success of crowdfunding, which allows companies to raise money without a listing.
Dunne said the increased scrutiny from regulators on financial advisers was a double-edged sword.
She said the expectation on advisers that they would accurately describe investment risk to clients and match their investments to their risk profile correctly led some to take an overly cautious, conservative approach and bypass investments such as the NXT.
“If investment advisers think their rules mean they should only look at companies that are rock solid then the will put every investor in the NZX 10, Auckland Airport and the gentailers. It results in stagnating value boards. There needs to be a balance.”
A continued decline in the NZX would lead advisers to look overseas for investment opportunities, she said. “It’s so important for the New Zealand economy to have a strong capital market so KiwiSaver funds and the like can invest in New Zealand listed companies. It’s a bit of a vicious cycle.”
She said New Zealand invest seemed more risk averse than some, which led some specialised or growth companies to go straight to the ASX. “Our Australian neighbours are more willing to take a risk on early stage and tech companies that are not so well understood.”
Dunne said advisers still had a growing role to help people new to the market understand their investments.
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