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PAUL MCBETH: The quest to transform private into public

5 min read

Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He’s been a member of the NZ Shareholders’ Association since February 2024 and had an active Sharesies account since January 2024.

People make a lot of the outperformance of private equity and ponder deeply the ways regular folk limited to public investments can tap into the greatest minds of our generation.

Locally, the topic of the day is how KiwiSaver funds can direct more of the nation’s privatised superannuation top-ups into those mysterious corners of market-land, as if the fatter returns of the promised land will make up for decades of short-sighted politicking where sacred cows must be worshipped rather than sent to the meatworks.

On that front, we’re still waiting for commerce minister Scott Simpson to come to the party and make it a little bit easier for the less ambitious providers who didn’t jump on the bandwagon years ago.

A decision is coming, but so is Christmas, and Simpson shows a greater degree of keeping in the good graces of his National party caucus colleagues than his predecessor – who was in a hurry to get things done faster than an overland voyage to the South Pole.

And to be fair, it makes a lot of sense for an appropriate allocation of the burgeoning KiwiSaver funds to go into privately held companies, be they large or small, where the opportunity to enjoy an outsized payday when the firm is sold can plump up overall returns and justify a potentially handsome fee.

I am not what I am

We’re also seeing more opportunities for those people straddling the ever-shifting ground between being a retail and wholesale investor, with offers of exposure to the mega-companies of the future.

Kiwi investors able to cross the line of legislated protections can get exposure to Elon Musk’s xAI or SpaceX or Fortnite-developer Epic Games through boutique asset manager Net Funds, which quite likes the back-end services provided by junior bourse operator Catalist, while Syndex’s US partner has sourced lines of Anduril and AI-startup Anthropic to put in front of locals with the cash and nous to shed their retail cotton wool.

The next evolution of bringing private markets to the public has hit Wall Street with trading platform Robinhood announcing plans to issue tokenised stocks, where a company’s shares are put on a blockchain rather than a traditional share register and might not have to comply with the same disclosure rules.

Robinhood’s only offering it to European clients for now, presumably so some very expensive lawyers can prepare their arguments when the US Securities and Exchange Commission comes calling, but the idea has got some tongues wagging as to whether this is the way the regular retail investor might be able to participate in that riskier investment.

I know my price

But the trend is clear that the new players upending traditional financial services are following the money into areas where they see the biggest opportunity.

For Sharesies – our homegrown investment platform that tore down the barriers of entry to investing in the NZX – much has been made about its foray into KiwiSaver as it followed the funds management fees that get better every year in the accumulation phase of most people’s lives and embraced the example set by traditional brokerage firms, who leapt into wealth management when they could see the pot of gold at the end of the rainbow.

What hasn’t been appreciated as much is its acquisition of the Orchestra share registry business founded by Snowball Effect – best known as a crowdfunding platform rather than the private offers for wholesale investors that are its bread and butter.

Sharesies absorbed Orchestra – now dubbed Sharesies Private – last year, adding a share registry business that integrates with New Zealand and Australian companies registers and provides all sorts of nifty functions for private businesses to interact with their investors, including the ability to facilitate trading in a secondary market and run employee share schemes.

And last year the trading platform nabbed the mandate for Fonterra’s trading among its 8,000 or so farmers, building up the ability to handle a chunky restricted investor base on top of a fairly strong claim to being the home of the retail investor, given its 800,000-strong user base.

‘Tis in ourselves that we are thus or thus

As the lines get muddier between the public and the private, these types of platforms are gearing themselves up for the next iteration of securities regulation as the sharpened pendulum swings back to slice through the reams of red tape built up since the global financial crisis.

Still, the bankruptcy of private stock investment platform Linqto lays clear the risks of unregulated investments, where some of its clients never actually owned the securities they thought they did, and the platform was marketing its services to investors not eligible to buy those pre-IPO stocks in the first place.

There’s a reason we have rules, and making it easier to go public might not necessarily lead to endless initial public offerings if private equity can still sign blank cheques and operate in a black box where ne’er a decision is questioned by an itinerant non-believer.

The New Zealand Shareholders’ Association’s chief Oliver Mander is an ardent fan of a graduated approach to close the regulatory arbitrage favoured by the big end of town, allowing for a lighter regulatory touch in those private places rather than none at all.

And if KiwiSaver funds are going to start priming the pumps locally, there’s definitely an argument to be made for those funds to offer a little more transparency rather than be small line buried deep in an annual report.

Image from Negar Nikkhah on Unsplash.