Money is moving in, out and around New Zealand, largely directed by people’s spending and investment choices. But how do investment decisions shape the world we live in? And how can we ensure that our investments sow the seeds of future prosperity, rather than blow financial bubbles in markets like housing?
The second conversation for The Next Great Transformation series was “Seeds or Bubbles? Investing in the Future of Aotearoa New Zealand”. AUT Adjunct Professor and journalist Rod Oram began the evening by asking each speaker what investment meant to them. (The full video is available here.)
Mary Quin – formerly the chief executive of Callaghan Innovation and now on the board of Westpac – describes investment as “an ability to fund your own vision of what you want the future to be” – whether that’s investing in entrepreneurial projects, or community advancement, or one’s own retirement.
The challenge she identifies is that “people invest in what’s familiar.” For New Zealanders, this means housing. Reflecting on her return to New Zealand from the United States, where she was an executive at Xerox, Mary says: “The norm in New Zealand is to invest in real estate, particularly residential... whereas the norm among my friends and colleagues in the States was to buy stock.” This involved a balance of stocks and bonds, with some money dedicated to start-ups, largely through managed or mutual funds.
A hurdle in New Zealand is the perception that stocks are too risky. Overcoming this, she argues, requires ensuring that people understand the relative risks overall – which includes the risks of investing in real estate. If interest rates go up from their abnormally low levels and house prices go down, there are major financial risks for New Zealand, amplified by the lack of liquidity and investment diversification.
Investment in housing is also implicated in the challenges she sees new companies face in New Zealand: the lack of access to capital to grow. “When so much money is tied up in bricks and mortar of housing,” she says, “there’s not really much value created beyond what is driven by demand, whereas if that same money was going into exciting companies, there is far more value created.”
Creating value is the aim for Sir Stephen Tindall, who joined the conversation just one week after Auckland’s victory parade for Team New Zealand, which he chaired in its successful campaign for the 2017 Americas Cup. Sir Stephen is active in various parts of the investment spectrum – in business through The Warehouse, in philanthropy through The Tindall Foundation, and in venture capital through K1W1 – but he highlights the emerging movement of impact investment as a common thread.
“What [impact investment] is about is looking at causes,” he says, “then looking at ways you can invest that actually help the country.”
He discusses a few such investments, including waste-to-value companies that turn steel mill waste into ethanol (LanzaTech) or extract titanium dioxide from slag (Avertana). He highlights the Gisborne-based Wood Engineering Technology which cuts up logs then laminates them back together to create high-value structural lumber. He also discusses philanthropic investments through The Tindall Foundation, such as Trees That Count which is building a national movement around tree planting, and the New Zealand Housing Foundation which builds houses for low-income residents with a pathway to ownership.
He says: “I’ve been doing this now for 23 years and I’ve always had this philosophy that (a) I will only invest in New Zealand companies and technologies; and (b) that... if you can get enough winners, then people will start to follow.” Investment breeds further investment, crowding in additional capital. The key for start-ups is “a compelling value proposition”: “There is no shortage of capital if you’ve got something that looks incredibly profitable – people pile in like crazy. But if you’ve got something that looks attractive to the world, then that’s even better.”
Rangimarie Hunia, CE of Ngāti Whātua Ōrākei’s social development company Whai Maia, says that: “When I think about intergenerational investment, it’s not just an ideology, it’s a reality, a fact.”
She describes investment through a kaupapa Māori lens: “From a tribal perspective, our role in life is to take care of the perpetual estate of the tīpuna. We don’t own individually anything. We are in service to the vision of our ancestor... [who would say that] your role is to support people to live powerfully. And to live powerfully we need to think very differently about what people are doing and how people are doing it.”
She emphasises that Ngāti Whātua Ōrākei, as an investment organisation, is still young. After the 2011 settlement, the iwi has gone from $300 million to $1 billion, a precipitous rise which involves “speed wobbles”. For her, strategy is about “how you manage that speed wobble” and how to direct growth toward the things that really matter to Ngāti Whātua: “It’s not just about money, it’s about mana – and mana is a consequence of that [long-term] investment going well.”
She sees change coming to the economy, driven not only by a new generation of conscientious consumers, but also by producers and their values. She discusses her work on the board of Te Ohu Kaimoana, the Māori Fisheries Commission, which is looking to add value to exports by rebrand what is unique: the connection to Aotearoa New Zealand.
“It’s not about quantity [of exports],” she says, “it’s about quality and the authenticity of the story. I’m excited about that as a business model, because it’s not being driven by the end value, it’s being driven by the values that people have about what they will connect to... I think that’s a global phenomenon: authenticity and the connection to the story is becoming important.”
Joshua Vial from Enspiral, a network of tech start-ups with strong social and environmental commitments, also emphasises the diversity of value. Thinking about investment only in terms of money reveals “an incorrect view of reality”, because we also invest time, reputation and knowledge.
That lack of realism can lead to problematic views of success: “If I put down $10 and in a year I make $100, that looks pretty good. But if that cost everyone in this room $5, then that looks much more like extracting from an economy than actually investing and creating value. But it’s not just money. Say, instead, everyone’s health diminished a little bit; for instance, I put carbon into the atmosphere in the process of making my $90 of surplus. Again, it’s not a true investment, it’s not a true creation of value. Without discussing and measuring the other things we value apart from money, we can’t really talk about investing correctly.”
He adds: “When I think about investing, it’s about trying to find opportunities where the there’s a gap between current reality and the possibility space of the future, where there’s something possible that is more beautiful, more powerful, more wonderful for all of us. [...] It’s about sacrificing current wealth in the hope of future wealth.”
This involves investing in direct outcomes, but also “catalytic outcomes” – that is, changes to the wider ecosystems within which social problems are produced and reiterated. So, we shouldn’t only be thinking about building houses to fix the housing crisis, he says, but our tax settings, our regulatory framework, and our social environment. “Direct outcomes are less risky and cheaper to get,” he says, “but often they’ll be less powerful. Whereas catalytic outcomes are much more expensive, much more risky, and often it’s a battle [with the people who benefit from the current system].”
Picking up on Mary’s point about people not investing in the unfamiliar, he observes that we are also, paradoxically, well-advised to invest in what we know, because we make poor decisions about what we don’t. Thus, Joshua concludes: “The challenge is to extend what is familiar to us”, to learn more about the investments we ought to make but don’t yet understand.
Finally, not only do we need to think about what we invest, but also what we inherit. He says: “All of us are beneficiaries of a huge amount of wealth we didn’t earn... whether it’s money, knowledge, skills, or the health of the planet”. The appropriate relationship to these inherited goods is stewardship: “We should look to preserve and enhance that for people who come after us.”
On this, the speakers all agree that investment patterns must change – and indeed are changing. The question is whether these changes will occur with the necessary urgency.