Elevation urges NZX to shrink exec team and rethink strategy

Wednesday 3rd October 2018

Elevation Capital wants NZX to halve its executive team and narrow its focus and says it will challenge the board if it has to.

The fund manager says NZX's executive team of 16 and a board of seven are both too large and that the stock market operator should stop diverting attention from its core markets business with units such as its Smartshares unit. It's launched a hashtag campaign urging NZX to rethink its strategy, which Elevation says has seen the firm's share price underperform its peers and pay an unchanged dividend for the past four years.

Elevation managing director Chris Swasbrook says he's told the board and management that he thinks there aren't enough benchmarks to gauge success. However, it was the recent trip to New York by more than 10 NZX directors and managers that triggered the campaign.

"They're completely tone deaf and not responding to shareholders," he told BusinessDesk.

Elevation owns 6.2 million NZX shares, or about 2.3 percent of the company. Swasbrook says he has received strong support from other investors since going public.

He wants a detailed response from the NZX board and management team by the close of business on Friday. If that doesn't happen he's willing to call a special meeting to challenge the board, he said.

NZX said it welcomed several points in Elevation's report and will continue to engage with Swasbrook on the issues raised.

"As noted in Chris’s report, NZX is addressing many of the points raised by Elevation Capital, divesting our non-core assets, improving our customer service and business efficiency, increasing liquidity in the secondary market, and progressing plans to simplify the New Zealand market’s structure and rule set," a spokeswoman said.

"We appreciate Chris’s point that it is important to deliver progress as quickly as possible, and our team look forward to updating investors, and the broader market, on our progress with release of our full-year results in February."

lLast month NZX announced a new memorandum of understanding with New York-based Nasdaq to investigate ways to develop closer links with the tech-heavy bourse operator, adding to similar deals it has made with exchanges in Hong Kong and Singapore.

NZX said the Nasdaq agreement was a significant opportunity for the company and supports its focus on growing the core markets business.

Swasbrook said MoUs were nice but didn't always deliver on the intended result. He prefers strategic joint ventures, and says the exchange could look at selling down its dairy derivatives business to free up capital and tap the expertise of partners in those markets.

Similarly, he would like to see NZX spin out its funds management business into a separate entity to be managed by a new specialist team to unlock value for shareholders. That would let NZX focus on its core markets business with a slimmed down team.

"NZX is vital to the capital markets. I want to see them build out platforms for the betterment of capital markets. They can only do that if they're honest with themselves and recognise they're being distracted."

(BusinessDesk)

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