Elevation Capital founder Chris Swasbrook this week called for the stock exchange operator to sell its funds business and focus on its core operations, slashing spending and reducing head count.
It said NZX’s non-core business segments, such as funds services, were generating about 30.5% of revenue but only 10% of operating earnings. The businesses were subscale, had few barriers to entry and lower margins than NZX’s core business, it said, but at the same time NZX was having trouble growing them.
Being an exchange market operator was a different business to operating a funds service firm, Elevation said, requiring different management and board skills. But spun off, that new funds management company would compete fully in the marketplace via the acquisition of active funds management businesses, private equity and/or venture capital businesses. It could also develop a fund seeding and incubation business to capitalise on investment made in regulatory compliance.
NZX chair James Miller responded with a letter to shareholders, in which he said the board was conscious of the need to improve returns to shareholders.
"Over the past 11 months, we have advanced our business materially and are confident about the future. Our non-core businesses have been divested, customer service s and business efficiencies improved, secondary market liquidity increased and plans well progressed to simplify the New Zealand market's structure and rule set."
He said the board welcomed investor feedback but the shareholders applying public pressure for the NZX to sell its fund management and wealth technologies businesses were a "small group".
"New Zealand's fund management sector has significant growth potential and maximising the growth of our superannuation, KiwiSaver and exchange-traded funds products is a priority. Growing these passive products underpins the development of NZX and the broader public market while supporting several of our key strategic initiatives. These businesses are important for delivering earnings growth."
Adviser Simon Hassan, now consulting and chair of the FInancial Advice NZ certification committee, said Elevation's criticism was fair.
"It's a conflict of interest for the NZX to operate a funds management business."
He said concerns that, if the passive funds were sold to an active manager they might be shut down, were probably unfounded.
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