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Trustees weigh up Paterson's investments

By Chris Hutching

Friday 11th July 2003

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Trustees of Howard Paterson's estimated $170 million-plus fortune met this week to discuss the future of his investments in the face of uncertainty about some deals going ahead without his financial backing.

One of the key men overseeing the review is David Smallbone, a friend of the Paterson family and a director or shareholder in most of his companies.

About a dozen deals in various stages of being set up are unlikely to proceed but many other shareholdings in established companies will continue. For example, a timeshare deal he was working on is unlikely to proceed with the backing of his estate. But a recent investment in Treble Cone skifield should continue, along with a capital commitment to fund new equipment.

In the normal course of business Mr Paterson and his partners would consider up to 100 prospective proposals, whittling them down to about 10 and ultimately choosing one of them to invest in with a minority stake.

The trustees' primary responsibility is to preserve capital for Mr Paterson's family ­ the beneficiaries of his estate. This means they must maintain a balanced portfolio. For example, in a well- known case in 1996 involving the John Mulligan estate, the trustee, PGG Trust, was ordered to compensate beneficiaries because it had locked up investments solely in low-earning fixed-interest securities compared to the management of his widow's investments in a range of shares and securities that were worth nearly six times as much when she died.

The largest portion of Mr Paterson's fortune was invested in various rural and commercial properties, unlisted public companies like NZ Deer Farms, partnerships such as Mainland Poultry, and high- country stations and lodges or properties such as Eichardt's boutique hotel in Queenstown, where he was a 25% shareholder. These shareholding are likely to remain.

By contrast, the listed companies that tend to receive most media profile represent a relatively small portion of his investments. The main effect initially will be psychological in the absence of Mr Paterson's inspiration.

A friend, John Martin, said yesterday it was important for people to realise that Mr Paterson was not involved in day-to-day management of his many companies. He tended to influence the appointment of board members and senior management but then left them to get on with the job.

Listed Hirequip (formerly Southern Capital) is an example of a company where Mr Paterson's absence as a director and minority shareholder appears to have little effect, with the share price rising marginally this week. He recently achieved the back-door listing of Hirequip under its own managing director and major shareholder. The future of fledgling biotech companies like Botry-Zen, PharmaZen, C J Surgical and A2 Corporation is less certain.

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