Moz down under part 2: Opportunities in New Zealand

Welcome to Beyond the Benchmark, the EFG podcast with Moz Afzal.

Moz Afzal:
Hi everyone. So today I have with me Andrew Kelleher, formerly from JMI Wealth, now Shaw and Partners, and of course part of the EFG group. Andrew, welcome to the podcast.

Andrew Kelleher:
Oh look, it's an absolute pleasure to be here with you, Moz, and I've had a great time actually with you the last couple of days. So it's your first time in New Zealand. So it was wonderful to be able to show you a little bit of, show you our business, talk to you and allow you to talk to our clients. And also just to show you a little bit of New Zealand and a little bit of Auckland, and hopefully we've done enough to get you to come back as well.

Moz Afzal:
No, absolutely. I've really enjoyed the time with you and your family and clients. And of course, the Shaw and Partners colleagues here in New Zealand. So Andrew, so maybe give us a bit of background as to your role, but also the background to EFG Shaw and ISG's history.

Andrew Kelleher:
Sure. So back in one July last year, we had a business called Investment Services Group, ISG, which was formally acquired through Shaw and Partners in Australia, but ultimately the ultimate parent being EFG. Investment Services Group was an integrated financial services business. So we had three or four brand names operating under the Investment Services Group heading or parent company. Now, business has been around for a long time. The investment advisory business started back in the 80s. It was set up by the then chairman of the New Zealand Stock Exchange. And I think some of the founding values of the business I think are important and we should talk about. Back in the 80s, you probably would remember. Client interest first wasn't always the thing that came to mind when people looked at investment advisory or share breaking. And the founders of our business really wanted to build a business where we put client interest first.

And so Jard and Morgan Investment Services grew out of that desire. And we've tried to hold true to those values over the last, well, we're getting onto 40 years now. So the business, I think it had a great reputation. In New Zealand, we offered high net worth sort of investment advisory services. The internal funds management business sort of grew out of that. And then we acquired a platform business where we were the investment consultant. So there was a lot of growth along the line. We merged with Paul Glass, who is now the executive chairman of Shaw and Partners in New Zealand. He had a business which was an institutional funds management business. But look, Moz, we did get to the stage where the New Zealand environment was, there was a lot of consolidation going on and competing scale became very important. And so we sort of looked around and said, how can we scale the business up and ensure that we can compete and we can grow within the New Zealand framework?

And we were very fortunate to start talking to Shaw and Partners in Australia. And I think then between Shaw and Partners Australia and EFG, they decided that we were a good fit and we couldn't be more pleased with the relationship. But one of the really important things was that amongst all the consolidation and all the M&A activity in New Zealand, there was an awfully large presence of private equity money. We were quite adamant that we didn't want that. We wanted a long-term partner that we could identify with the sort of values of that partner. I think we couldn't be happier than the partnership we've got now, both with Shaw and Partners of Australia who bring a whole lot of skillsets that we didn't have. And then EFG, which brings that global aspect and we can't, we're just very excited about the way we'll be able to improve our client outcomes.

Moz Afzal:
Well, certainly from what I've seen over the last few days while I've been here in Auckland is that very much the sort of cultural values that you hold very much fit with the EFG culture. So let's talk about you.

Andrew Kelleher:
About me.

Moz Afzal:
Yeah, about you. So how did you start your career and how on earth, starting from the UK, Manchester, how on earth you ended up being in New Zealand?

Andrew Kelleher:
Well, I'm a proud original Manchester United fan. Having grown up in Stretford.

Moz Afzal:
So Albert Chiu, who's our Asia Pac regional business head and myself are indeed Man United fans.

Andrew Kelleher:
Albert and I have already made that connection. So we've got a nice little group. Well, I grew up very close to the ground, but in the sort of mid 70s, my family decided to immigrate to New Zealand. And so we became the sort of last wave of what was a lot of assisted migration from the UK to New Zealand. And I can guarantee you, Moz, that financial markets were actually not on my radar when I was young. I had a passion as a kid, which was history and archaeology. And believe it or not, I have a degree in archaeology and ancient history and ancient Greek and ancient Egyptian history. And that was my first career. I worked as an archaeologist in the north of Italy for a private archaeological group. But unfortunately, I realised quite early that there were no fortunes to be made in archaeology.

And through one thing or another, I ended up back in New Zealand as a fairly young man and took a job in a trading room. Very surprised that they hired me in that trading room, but I immediately sort of found my feet, loved it and spent the next or 10 to, or actually a little bit longer, spent the next 12 or 13 years and in the end running the trading room for one of the trading banks here. And then they asked me to help them set up a share broking firm. And I did that for a little while, but then I really, really did have the desire to be the sort of master of my own destiny and ended up buying into the JMI business as a shareholder over 20 years ago now. So I sometimes wonder where the time has gone almost-

Moz Afzal:
It's a 20 year journey?

Andrew Kelleher:
Yeah. Well, yes. And almost 1987 I started. I started three weeks before the share market crash. So next year will be my 40 year anniversary in the business. Amazing. And I've absolutely loved the journey that we've had with our business, watching it grow, helping our clients sort of achieve their goals, helping them with their investment planning. Along the line, I've owned retail businesses. I owned a Toyota business at one stage. I owned a surf shop. So it's been a busy time, but always with that, wanting to help people and wanting to get client outcomes as good as we could make them.

Moz Afzal:
Yeah. Well, certainly one of the things I've noticed is that ... I think there's two things I noticed about you. First of all, all the clients I've had to met over the last few ... Because we've done maybe seven or eight different presentations throughout Auckland over the last few days, but I've just seen that you're the face, right? So everybody comes to you and I think that's very noticeable, but I think that that connection you have with them is obviously super important. Now the other thing you do is you have a regular radio show and lots of TV. Maybe just two seconds on that.

Andrew Kelleher:
Oh, well, the TV has declined a little bit. Maybe I've got more of a face for radio. Yeah, no, back in the days of when I was working for the bank, the bank and then the share breaking firm, we actually used to go on the six o'clock news live every night and talk about the share market. Nobody talks to me at home. So if I get on the radio or the TV, at least I've got a captive audience. But for the last 10 years I've been doing it. I do a little slot on one of the breakfast programmes here and talk about markets and what's happening in the world. And I love doing it.

Moz Afzal:
Well, long may that continue. So let's get into the details about the New Zealand economy. It's kind of my first time here. What's the current shape at the moment? Obviously we've got the Middle East crisis rolling in here, but say pre-crisis, what's key drivers to the economy?

Andrew Kelleher:
We essentially are an agricultural economy, although these days, people would be surprised, but the services sector of the economy is probably circa 70, 75%. Agriculture is very important though. And if you look at the direct and the indirect imports from agriculture, that probably is 10 to 15% of GDP. Look, what it does mean though is that we are somewhat sort of linked to global commodity price cycles. So there's not a lot we can do about that. At the moment, this is playing in our favour because the commodity prices are quite high. The key commodities that come out in New Zealand, whole milk powder, skilled milk powder, obviously from the dairy industry, not the only thing. There's mozzarella, there's butter, and we all know how high those prices are. I think there's a lot of croissant makers in France who are unhappy about the high price of butter at the moment. So they're giving us a real tailwind. Tourism is another key pillar of our economy. Tourism has obviously been through some tough times post- Covid.

The tourism was constrained. There was a lot of specific factors to that as well. We had particularly tough border rules and there was a reluctance to travel. So we are only now in 2026 getting tourism New Zealand back to the levels that we saw pre Covid, but it's still quite an important ... The meat sector, red meat, we're doing very well exporting red meat to the US at the moment. There are issues in the US with their herd size. They've had some issues there. That's really increased the demand for our red meat. So a lot of red meat goes from New Zealand, ends up in McDonald's hamburgers.

Of course, wine. One of my other favourite topics, Moz, which I think you might have picked up on in the last couple of days as well. There's an enormous demand or has been over the last few years for New Zealand Sauvignon Blanc. That is dimming a little bit. We're making a lot of strides now in the premium end of wine with our Chardonnays and our Pinot Noirs and a lot of wine makers doing very well on that front. Logs, fruit. So those prime industries really important. Look, New Zealand's had some growth issues. Coming through 2023, 2024, we really struggled from a growth point of view. And actually last year in 2024, we had a technical recession. We had two quarters of negative growth. But the real issue, I think, has been our GDP per capita. As with a lot of nations like New Zealand, sort of the old Commonwealth nations, net migration has been a key driver of economic growth over through the different cycles. New Zealand has been no different.

And despite that, we've really struggled to grow. And we thought we were going to come right in 2025. The catchphrase was survive till 2025. It was a false start. Growth never got going in 2025. So we really had our hopes pinned on 2026. It did look like we were improving. The growth was improving. We had growth forecasts coming out of the central bank of sort of high twos, 3%, but this was all sort of pre what's happening in the Middle East. So look, we're still positive for growth in New Zealand over 26, 27, sort of through maybe into 28, but who knows how much of impact the Middle East crisis will have.

Moz Afzal:
If you had to kind of pull two or three switches to get New Zealand growth stronger, which ones would they be to pull?

Andrew Kelleher:
Well, I think we were having a conversation earlier on about a sort of a global problem and that sort of productivity. And New Zealand's had the same issue of not being able to lift productivity, so much so now that I'm sort of applauding the fact that we might get 3% growth. Unfortunately now, because our productivity levels are so low, that could actually find that that 3% growth, we're hitting our speed limit and we get an inflation issue. So I think we've got to try and search for those ways of improving our productivity. Now, it's a problem that's vexing economies all around the world. I would love to see a lot more focus on that from the government on how we can improve education, how we can improve skills, how we can attract capital into New Zealand, into startups, and sort of look at that productivity on a long-term view, not some of these short-term fixes that may have been seen before. So that's probably one switch I'd like to pull.

I'd love to see our tourism composition change. We do very well with tourists from Australia, but really what we'd like to do is attract that higher value tourists to New Zealand. I mean, there's no problem with people wanting to come to New Zealand. There's been plenty of Lord of the Rings movies that have made people look at New Zealand and say, "I want to go there." But we really need to lift that value and offer more experiences. I think New Zealand's a pretty attractive place for people to visit at the moment. It's a long way from all the problems and stable government, relatively friendly population, and there's no reason why we shouldn't be able to grow that.

Moz Afzal:
Yeah. So I mean, one of the things I've noticed is the infrastructure surprised me. I expected it better. For example, I was just thinking about crossing the bridge between the sort of central towns. There's only one bridge, but that was probably a little bit of surprise to me. And one of the things you told me straight away was that you just don't like going on that bridge because you just learn.

Andrew Kelleher:
Yeah, I don't do traffic. I certainly don't do traffic around five o'clock at night. Look, Moz, there's some simple facts we've got to deal with here. We're a big country. We're a big country prone to natural disasters and we've only got five million people. So infrastructure is expensive and it's always a hot topic, particularly when we're coming up to elections, which we have this year as to how much of that infrastructure do we actually want to commit to building. You haven't driven outside of Auckland. For a long time, if you wanted to drive up north, basically half an hour outside of ... And I used to live in the far north, and basically you're on a goat track when you were 45 minutes outside of Auckland. Look, it's an ongoing problem. And of course, we have a fairly short electoral cycle as well, so three years. And when you're thinking about long-term infrastructure-

Moz Afzal:
Yeah, you can't do it in three years.

Andrew Kelleher:
Now you need some bipartisan commitment to infrastructure. So I've always been a fan of maybe our key political parties getting together and agreeing on some infrastructure projects that have a sort of a 10 to 20 year plan and committing to it so that we can actually get these things done. Apparently we're going to get a tunnel under the ... It probably won't be ready for your next trip.

Moz Afzal:
I won't hold my breath. I won't hold my breath. But I think that's kind of the key thing is when you're looking at a country such as New Zealand, that infrastructure piece is actually kind of quite a critical one. And you kind of have long-term thinking around that because that's how you get your productivity. So it'd be quite interesting to see whether we go up to next government cycle, whether you do get those projects through. So let's talk about the Middle East and where we are with respect to the energy situation in New Zealand, because it sounds pretty critical.

Andrew Kelleher:
Yeah. So New Zealand has obviously the whole world is facing the same issues in terms of 20% or 15 to 20% of the supply of oil has all of a sudden stopped arriving. New Zealand does have some quite specific issues around sort of resilience and supply. We do not have any refineries in New Zealand now, so we are completely dependent on offshore refineries and we import petrol, we import diesel, we import jet fuel. So not only do we have the potential constraint of supply, the resolution for us has a few more pieces to the puzzle. So it is quite a specific issue for us. And in light of that, we're obviously starting to see some stresses and strains and it's going to impact on growth and it's going to impact potentially on inflation. And as I said before, we were looking at maybe high twos, 3% growth through 2026 and into 2027.

Moz Afzal:
Maybe we can sort of shift onto the bond and equity and fixed income markets, but maybe start with the bond market. So obviously they've priced in probably a little bit too much in terms of kind of short term.

Andrew Kelleher:
Hey, look, the fixed interest market's really in it. It's where I've sort of had a lot of experience.

Moz Afzal:
So where we have commonality.

Andrew Kelleher:
Yeah, exactly. Your fixed income guy too. The first thing is, is the long end of the New Zealand market, unsurprisingly, is pretty highly correlated with, with US long rates. So we watch that pretty closely. The short end, obviously more dictated to where our policy rate is. Initially, the market started to get quite concerned and we're pricing on a lot more hikes to the OCR than actually, I think we will see. Look, from an offshore investor point of view, the New Zealand fixed income market is actually quite a friendly place to invest. We have quite a deep liquid ... Well, it's not large, but it's quite a liquid government bond market, the semi-government bond market. We do have a lot of offshore interest in our bonds, and I think the New Zealand play was quite evident amongst a lot of hedge funds. Does become difficult if they want to get out in a hurry because then that liquidity issue does get tested. But I think at this stage, we occasionally see the New Zealand market decouple from what's happening in offshore markets. I think when you've got something as big as what's happening at the moment, that's unlikely to happen.

Moz Afzal:
So we're talking a little bit earlier today about the Kiwi and- The Mighty. And the Mighty Kiwi. Obviously it doesn't look so mighty at this moment in time and seems to be something technically, and we were discussing that actually it could be a little bit more problematic in the short term. Any thought or do we still stay in this range we've been in for a while now?

Andrew Kelleher:
Well, we call it the Kiwi, we call it the widow maker. It's a very difficult currency to call, and very surprisingly, and I think a lot offshore investors and people who are interested in markets will be surprised to learn how heavily traded the New Zealand dollar is. We have a stable banking system, we have a stable government, we have strong regulations. It is volatile. Yes, it's coming under a little bit of pressure. I always make the comment that we look at the interest rate differentials, we do all that sort of analysis, but at times like this, big dollar always beats a little dollar. So it's what's happening with the US dollar that will drive it. It's weaker though. On a more medium term perspective, the reserve bank does put a trade weighted index into their forecasts. And as we're concerned about inflation at the moment and certainly imported inflation, that trade weighted index is now under 66 cents.

So should it persist there, then that will feed into the central bank's model as well and will generate more imported inflation. So I think that's probably, people probably aren't looking at that a lot at the moment, but I think that will feed into their overall view of the tightness or the looseness of monetary conditions. So that's one to keep an eye on.

Moz Afzal:
So let's finally move on to the stock market. Maybe give us for certainly some of us who are less informed than you in terms of kind of the makeup of the stock market. Obviously it's always had a very high dividend yield, this has very much been kind of value orientated market, but maybe the composition and kind of where you think sectorally where the opportunities lie.

Andrew Kelleher:
Look, yes, the New Zealand champion, it's small. The NZX is a small exchange. I mean, the last time I looked, I think total market capitalization was about 200 billion New Zealand dollars, which is the size of a small US company. So it's not a big exchange, but it has been well supported by New Zealand retail investors historically. What's interesting now, Moz, is because it is a small market, it's not that liquid, a lot of local investors, certainly when you go into the smaller funds or even the larger funds, are now starting to look at Australasia as our domestic market. So Australia has become far more an important place for New Zealanders to put their money, but we do have a dividend type market. So it's always been a place where savers have gone to sort of change that return profile from simply being in term deposits.

We have issues with concentration with a market that's small, and it's heavily geared towards companies like we have what we call the gentailers, the electricity generators who also do retail. They're a big part of the market. We have sort of our one standout growth company, but there are certain sectors that aren't well represented. So it's never really been a tech market or a growth market. So investors have tended to look offshore for that. And I think I've watched certainly over the almost 40 years that I've been doing this, that investors have become more global in their thinking now. And if you go back, the asset allocations have certainly changed and that we're seeing larger allocations to global equities and even in retail investors portfolios now.

The one aspect I think quite specific is the New Zealand government is now offering a golden visa. So there's an investment route to residency in New Zealand. And there are sort of two ways that offshore investors can actually ... There's not many around the world at the moment and given the current situation, a lot of investors are looking, a lot of wealthy people are looking for somewhere else to go and the government's put sort of two routes through there. There's an investor can come in and invest in a sort of a standard balanced portfolio, or they can invest into a growth portfolio, but those growth portfolios, the investment has to be into approved funds, approved by the New Zealand government, and they are all private equity, private debt, private credit. So we've seen a little Renaissance and a little surge in interest as funds have come into New Zealand got registered to offer. And there's about, my understanding is there's approximately $3 billion has come in to what we call the Active Investor Plus programme.

Moz Afzal:
So maybe last word, what are sort of the one or two things that international investors need to think about or remember about New Zealand?

Andrew Kelleher:
We have got strong regulatory environment. We've got a strong governance environment. We are always going to be a little bit more affected by those movements and commodity cycles and global growth cycles, but we're a safe country. Importantly, we've got an awful lot of renewable energy here, and I think that could become more and more important.

The tyranny of distance that used to be a thing I think is now not so much a tyranny. In fact, it might be an advantage to us. We grow a lot of protein in New Zealand, and if anything's going to happen in the next 20, 30, 40 years, there's going to be global demand for clean and well grown protein. And I think we're probably one of the poster children around the world for that. So look, I see a strong future for New Zealand. I think not only that was, it's a great place to live.

Moz Afzal:
So with that, Andrew, thank you very much for coming on the Beyond the Benchmark podcast. It's great to be here. It's great to be here in Auckland and spend time with you and the rest of the team really had a great time and hopefully I'll be back soon.

Andrew Kelleher:
Thank you, Moz. It's been an absolute pleasure having you here. We look forward to your next visit.

Moz Afzal:
Thank you. So with that, we'll wrap up and we'll be back on the podcast very soon. Thank you very much.

 

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