Archive for February, 2010
Thursday, February 25th, 2010
I couldn’t find any mention of an apology on the NZX website following its confused position on the index-worthiness of Allied Farmers.
And while NZX chief Mark Weldon might be even now crafting his apology speech, he will be selling his sorriness into buyer’s market.
For example, the NZX site itself carries a link to, another, apology from Telecom head Paul Reynolds. As a late-adopter of technology I have no personal interest in the problems of Telecom’s XT network but Reynolds’ apology was terrific and I almost felt sorry for him.
Another recent apology that Weldon would have to compete with – if indeed he felt the urge to apologise for keeping retail investors out of a very important information loop – is this heartfelt one from Housing and Fisheries Minister Phil Heatley.
Heatley, who after acting a bit loose with his Ministerial credit card, spilled his guts in the official statement, which provided intimate details of some trivial expenditure.
“I have also reimbursed $31.50, being my share of a business sector lunch at Killer Prawn in Whangarei when hosting my colleague Steven Joyce,” Heatley writes. Was the bill split evenly? And if so does $63 represent good value for a lunch at the Killer Prawn?
He doesn’t say but Heatley admits to being embarrassed, and sorry.
“I apologised to the Prime Minister last night and want to extend that apology to my colleagues and the public.”
Gerry Brownlee was less effusive in his apology, which appeared just below Heatley’s on the Beehive website, for wasting 151.90 good taxpayer dollars on an electorate staff lunch.
Brownlee bristled while defending the validity of other contested expenses, which included the $1109.37 food and accommodation bill at the Seaview Lodge and Restaurant in Tonga.
Nonetheless, he swallowed his pride, returned his credit card and said sorry, although not to us.
“I accept I have made a mistake and I have apologised to the Prime Minister,” he says in the ‘Statement from Gerry Brownlee’.
Maybe the NZX is measuring the value of all these official apologies before contributing its own to the mix, or maybe it’s trying to match the recent celebrity apology benchmark set by Tiger Woods.
“For all that I have done, I am so sorry,” Tiger Woods bleats in his speech.
But what about the things he didn’t do but should’ve?
Tuesday, February 23rd, 2010
Against the run of play the ‘financial hub’ concept I thought wouldn’t even make a news brief in Back Office Monthly has instead become headline fodder in the mainstream press.
Herald columnist Fran O’Sullivan had a crack; Bernard Hickey expressed a view on it; the ‘hub’ even was awarded a real news story all to itself.
In my blog of fortnight ago, I referred to the ‘industries’, which would form around the hub as “mysterious” – and despite all the coverage they remain a mystery to most.
As the writer known only by the pseudonym “L’homme” (he, or she, appears to be Canadian) commented in response to Fran O’Sullivan’s story: “What is a financial hub? What does it actually do? What does it produce?
Can anyone explain how this type of industry can benefit people who don’t work in the industry, in real human terms?”
These are really good questions and I’m glad the man (or woman) asked them.
Not sure about the answers, however. But to explain the best I can, a financial hub servicing foreign funds would be like an upmarket Bangalore call centre, without the need to fake accents or phone prospects around dinner time.
New Zealand would offer to do all the menial, but important, and not so menial processing work required for smooth fund management operations at a cheaper rate than could be carried out in the home country.
As to how the hub contributes to the advancement of humankind, I don’t know, but it could create jobs (although I think the claims of 3,000-5,000 new jobs is wildly optimistic) and drum up much-needed tax revenue for New Zealand.
And the hub industry doesn’t really need a tax break, just careful technical planning of tax rules so foreign jurisdictions can be assured New Zealand won’t become a tax-avoidance machine.
Hugh Stevens, who heads BNP Paribas Securities Services in New Zealand, told me if the hub does succeed the country could benefit in a couple of other ways not yet discussed: our financial regulatory regime would improve to meet international standards, and; New Zealand investors could see their funds management administration fees reduce as local operators achieved the magical ‘scale’ provided by the global billions.
It’s all very speculative, of course, but Stevens, who is helping the government with its hub feasibility study says the potential benefits are real enough.
Unlike Back Office Monthly, which I made up but if the hub does make the leap from imagination to reality, I’m launching it.
Monday, February 22nd, 2010
Questions regarding the way Huljich Wealth Management has been reporting historical investment returns raises some wider issues about the way fund manager performance is reported. If investors are to be better informed as the current government e
xpects, then a good starting point would be to ensure all fund managers are reporting returns in a consistent manner, as there is none at present.
Some fund managers are refusing to provide monitoring companies like Morningstar with information, some are comparing their performance against inappropriate benchmarks, and others leave out important information such as their management expense ratio (MER) when it suits them to do so.
That’s a pretty poor show and something the new governing body to emerge out of the proposed restructure by the government should address if it is to start to improve investor confidence in the funds management industry. Perhaps its time to mandate a reporting regime that:
• Prescribes a performance calculation and reporting methodology.
• Includes risk adjusted returns, such as return per unit of risk.
• Has full disclosure of all transactions to prevent fund managers conveniently omitting to mention loss making trades, or trades with associated interest.
• Requires disclosure of the management expense ratio (ie total fees pad to the manager as a percentage of the funds under management).
• Requires regulatory approval when using a comparative benchmark to measure performance or calculate a fund manager’s performance fee.
Once investors receive full and consistent performance reporting they will be in a position to judge whether a fund manager is in fact any more skilled than a mystic reading tea leaves or the random stock pickings of a chimpanzee.
Frank Newman is an investment writer and creator of the New Zealand Investment Game (awarded the best new game of 2009 by the NZ Games Association). See http://www.investmentgame.co.nz/.
Monday, February 22nd, 2010
The most important story of last week was from Telecom.
With XT knocked again by failures, the company has lost a huge chunk of customer trust this year – a difficult currency to accumulate and even harder to rebuild. This is all good news for the likes of Telstra, Vodafone, TeamTalk, Xtreme Networks, since it all heralds more competitive opportunity as the national provider stumbles about and makes enemies.
But that was not the Telecom story which caught my eye.
It was the “f**k you customer” texts, sent it appears, from as many as four staff in a call centre in the Philippines, where Telecom recently outsourced its 018 directory and other person-to-person customer relations tasks – or whatever corporate jargon is in vogue for the art of treating people properly.
I wish I’d been listening in on the calls that provoked those texts.
Being a call centre conversation, it will have been taped. That means HR executives in both the Philippines and New Zealand will have listened to the conversations between the Filipino operators and those they then texted with the pithy epithet in question.
CEO Paul Reynolds is almost certainly as aware of the content of those conversations as he is of the context of the texts they provoked.
It has to be an even bet, or better, that the tapes reveal New Zealanders behaving disgracefully. Like when a parking warden is caught issuing a ticket; or more scarily, in a confrontation with a tow truck driver, or perhaps in a festering neighbourhood dispute. That kind of off-the-wall angry.
Confrontation on the phone is easier. Your victim is invisible, trained to be subservient, and concerned for their job because all calls are monitored. If it’s a good call centre, they will be allowed breaks to let their racing hearts slow after dealing with customer rage. If it’s not, they will work there for awhile and leave as soon as economic circumstances allow.
Justified though such customer rage may be – God knows that falling foul of the standard way large corporations deal with customers is a path to a special no-man’s land – it is also true corporations get better at it, and as they do, our expectations as customers grow.
While there are, of course, plenty of dopey call centre workers as in any workplace, the systems they work within are more often at fault. Getting angry at the person on the phone just makes two people angry – it doesn’t solve a thing.
Anyway, there used to be a time there was no one to ring, and where waiting six weeks for a landline was normal – a landline for criminy!
Working at Parliament helped. A word to the private secretary in the Post-Master General’s Office and jumping the queue was easy. All you needed was a security pass to the Beehive. It’s a wonder the pre-Telecom Telecom didn’t make more money in an environment like that.
Now, most utility companies struggle with the commercial metrics of the need for human contact in customer service, because humans are always causing foul-ups that you can’t explain to a computer, and the need for that contact to be cheap.
It’s a troublesome collision, and one which will be relevant if Prime Minister John Key’s enthusiasm for Auckland’s potential as a financial services hub for the Asia-Pacific region prevails.
The idea is alluring. Stuffed with highly educated people speaking English, Cantonese, Japanese, Korean, English, Arabic, even Spanish and many other languages, and operating in a sound, low-cost legal and financial environment, Auckland could have competitive advantage.
But it’s a big gamble, because it will depend on acceptance.
For every Kiwi who disses their Filipino operator, there is a banking executive in Hong Kong, LA, Beijing, Sydney and Bangkok saying: “Deal through New Zealand? Are you kidding?”
Think about it.
Thursday, February 18th, 2010
Gareth Morgan’s marketing spiel in the New Zealand Herald this week made for a very entertaining read.
Morgan excels at scaremongering and he did not disappoint with his ‘KiwiSavers could be next victims‘ rant.
But while he raised some valid points – he always does – I think his text should be viewed in the commercial context in which the Gareth Morgan KiwiSaver (GMK) scheme operates.
In his article Morgan singled out the Huljich KiwiSaver scheme for criticism. Admittedly, Huljich has been caught out indulging in some unsafe marketing practices but it’s a huge stretch of the imagination to compare the savings scheme to some recently-defunct finance companies on the back of that.
More to the point Huljich is probably GMK’s most fierce rival in the particular KiwiSaver niche they operate in – both trade on their ‘Kiwiness’ and self-proclaimed high-performance abilities.
And the two schemes have been very successful in attracting members with GMK, in particular, getting off to a flying start when KiwiSaver launched in 2007. Of late, however, Huljich – in member numbers at least – has overhauled GMK.
According to the Workplace Savings NZ (formerly known as ASFONZ) website , Huljich boasted just over 54,000 members as at September last year compared to the 44,581 members reported by GMK in November 2009.
This represents spectacular growth for Huljich, which claimed only 14,123 members in March 2009 versus the 35,095 members on the GMK books.
It’s difficult not to conclude that Huljich might be cutting a bit of Morgan’s grass.
In a short-term performance sense both Huljich and Morgan have also lost some of their shine, which shouldn’t really matter to KiwiSaver members facing 10 to 40 years of investing. It’s also why fund managers who have just experienced a bumper year should report it with a dose of humility- a quality neither Huljich nor Morgan suffer from.
However, Morgan, in particular, has toned down his performance rhetoric recently after a disappointing year.
According to the GMK website, in the 12 months to January 31, 2010: its growth fund lost 6.61 per cent; the balanced fund dropped 2.51 per cent, and; the conservative fund returned 1.75 per cent.
While it’s not an exact overlap in time, the recent Mercer KiwiSaver survey 2009 annual performance data serves as a proxy benchmark to measure GMK against. In the Mercer survey the average conservative KiwiSaver fund returned 8.1 per cent in 2009; the average balanced fund returned 12.1 per cent, and the average growth fund grew by 16.5 per cent.
Steve of Wellington takes up the story here in one of the responses to Morgan’s article: “I’ve got my Kiwisaver with you Gareth and all I seem to do is lose money – thousands at the moment. How about less spin and more time trying to recover some of my money you have lost?”
Tuesday, February 16th, 2010
There’s something missing from this story which chronicles the sad tale of Geoffrey Adams, 41, of Greymouth.
Adams, perhaps the West Coast’s answer to Bernie Madoff, admitted to swindling his clients out of about $600,000 in a very rudimentary Ponzi scheme.
There wasn’t much to it, Adams simply attracted new clients “to pay out other investors as they retired and for his personal lifestyle”.
In his plea for bail, Adams’ lawyer said the guilty man had already paid back $44,000 and could handle paying $250 a week, which by my reckoning would take him over 40 years to clear the debt.
Judge Michael Crosbie quite rightly wasn’t having a bar of it and, in refusing bail, said Adams would most likely have to serve some time in jail.
His former clients may derive some satisfaction from this judgment. I hope they got some money too. According to the story, Adams was employed by a “mutual insurance company” during his Ponzi period.
And this is the glaring omission – the company in question remains anonymous, which doesn’t seem right in the circumstances. It may be possible to guess which “mutual insurance company” Adams worked for – there aren’t that many left in New Zealand – but I couldn’t find reference to it.
And the company should bear some responsibility, particularly, as Crosbie notes, Adams has a record of “a number of offences relating to dishonesty from 1986″.
That’s right – 1986: shouldn’t the insurance company carried out a few simple checks before hiring the guy?
Under new rules crawling their way into being, insurance companies and other entities that want to badge individuals as their agents or employees will have to be much more rigorous in their hiring and monitoring processes.
And if financial companies – even West Coast mutuals – want to lend their reputation to dubious individuals, they owe us the courtesy at least of apologising in public when it all goes wrong.
Monday, February 15th, 2010
If I was John Key, I’d be rarked up too with Reserve Bank governor Alan Bollard raining on my parade by saying the most New Zealand could expect was “crumbs from Australia’s table”.
I’d be even more pissed off because this was a week in which Key did Bollard a huge favour. He let his prime ministership take a battering, largely thanks to his government adopting policies that Bollard, and his predecessor Don Brash, have wanted for years.
That is: a big stick for beating house prices down.
The Real Estate Institute of New Zealand statistics released this morning show that, in January, home sales figuratively ground to a halt. Nationwide, 3666 homes changed hands, only the second month in the last 20 years to record fewer than 4000 transactions. That phenomenon coincided with the release of the Tax Working Group report that threw into doubt the tax climate for residential property investors.
In the heady month of January 2004, when unsolicited credit cards still fell from the letterbox like autumn leaves, more than twice that many houses were sold. The Reserve Bank was certainly banging on about the local love affair with property investment then, but did Michael Cullen do anything about it? No. He was too busy spending the Budget surpluses.
Now, the government has scared the be-jesus out of the investment rental property market, and just in time.
As ASB economist Jane Turner observed of the REINZ stats this morning: “The pick up in house prices of the second half of last year was surprisingly strong and did present a risk of reigniting unsustainable credit growth and consumer spending, at a time when a focus on increasing savings was needed.
“Fortunately … the Government looks likely to step in and help even the playing field. Changes to the tax policy around housing will reduce the amount of work monetary policy needs to do to bring inflation pressures back under control.”
In other words, Key is doing something “bold” – the operative over-used word this week – to change investment behaviour.
After all, if ending depreciation deductions on investment properties shaves 10% off the $200 billion national cache of such assets, he will be the first National Party Prime Minister in living memory to intentionally destroy $20 billion worth of wealth.
Muldoon did that sort of thing by accident and with the best of intentions.
Most of that wealth destruction is on paper, of course.
But it’s still a big call to make such a dent in so many aspiring middle class retirement plans.
You’d need to be very confident you could make up for that with economic growth. The question remains: can Key do it?
Well, this is a reasonable start. For a start, the government is deliberately making property investment look more risky, like lots of other more productive investments, so that more people with money will at least consider those other options rather than buying a bedsit rental in Kingsland and hoping for a capital gain to fund retirement.
In doing so, Key is delivering another long overdue piece of the economic medicine: “giving monetary policy mates” – an idea first zealously espoused by Jim Bolger’s first Finance Minister, Ruth Richardson, in the early 1990′s.
Then there is the tactical element. Key is trying simultaneously to kick-start an economy and to send a rather chilling message to the property-owning classes.
If the housing market can just go quiet – property values need not fall much but they have to stop rising for a while – that will take the pressure off interest rates.
The RBNZ’s need to lean on inflation with higher interest rates will fall away if the property market behaves.
Across the Tasman, and elsewhere among major trading partners, interest rates may rise. The question of “normalising” monetary policy is pressing globally. That could create short term export opportunity for New Zealand through a lower dollar.
For the longest time, New Zealand and Australian monetary policy settings have been in rough lock-step, meaning little improvement in New Zealand exporters’ competitiveness in Australia, our largest high value manufactured products market.
If the Aussie economy keeps spurting, while the New Zealand economy pauses for a structural adjustment in property prices, it’s a fair bet our interest rates will be lower for longer than Australia’s,
Since most of the wealth Key destroyed this week is only destroyed on paper, and actual export receipts arrive as cash on a SME business payment cycle – say 90 days – there are some of the pre-conditions for a jobs-rich, export-assisted recovery to offset wealth effects from property tax changes.
Add to that the fact that personal tax rate cuts are likely to advantage natural National voters anyway, and there is the bones of a plan to go into election year with the economy coming back to the boil.
In other words, this week, Key gave his very own Don Quixote over at the Reserve Bank the spoke in the property market wheel that’s been necessary for so long.
A quip that belittled his big political idea, which is what happened when Bollard dissed Key’s goal of catching Australia, was bound to irritate.
Thursday, February 11th, 2010
So John Key’s “bold” vision for the future wasn’t quite as radical as the pre-announcement hype led us to believe.
Key’s ‘most important speech ever‘ was more about what the government was not going to do than what it was going to do: no capital gains tax; no land tax; no risk-free rate of return tax for residential property investors.
Property investors will now have to wait for the detail in the May budget to see how they’ll be slugged. Everyone else’s attention has been expertly diverted to worrying about a GST increase.
Away from the main theme, however, Key’s speech strayed from making vague assertions about closing property tax loopholes to voicing loose ideas on how to help New Zealanders reduce their “heavy reliance on property investment”.
“We want New Zealanders from all walks of life to be able to invest their savings in productive businesses, either directly or through funds, with more confidence in the regulation of those capital markets, and with the knowledge they need to make informed choices,” Key said.
I liked that last bit – the “knowledge they need to make informed choices” – it is particularly obtuse. Do New Zealanders know they have to make more informed choices about investments and, if so, who is going to inform them?
Key was short on detail in regards to this but he did have a lot to plough through including promoting this obscure idea of making New Zealand “a hub for financial services in the Asia Pacific region, specialising in providing high-value middle and back office functions for the funds management industry”.
This is not vote-winning territory, or vote-losing territory either. High-value mid and back office providers to the funds management industry don’t have much of a public profile. Key really had nothing to lose by giving these mysterious ‘industries’ his whole-hearted support but even in this he came down on the side of further consultation.
“The Government is keen to see if this or similar new industries could be developed here and we have asked officials to determine what steps we would need to take to make that a reality,” Key said.
How about giving them a tax break?
Monday, February 8th, 2010
Early reports from the hui of Maori and national leaders at Waitangi suggest a typically turbulent exchange, piqued this year by signs of how the John Key-led National-Maori Party government continues to change the way politics could be played in New Zealand.
Friday’s Waitangi hui took place against a journalistically tasty backdrop of leaked and overt criticism over the role of the Iwi Leadership Group, an opaque but powerful initiative that is suddenly thrusting the foreshore and seabed into the public domain in the classically messy tradition of Maori – if not all – politics.
The issue became media property with the release of a marketing document from Excelsium, the PR firm run by lobbyist and political commentator Matthew Hooton, which argued the government is heading for the same political debacle as its predecessor on the foreshore and seabed issue.
Unless, that is, it restores the right of Maori to take their claim through the courts, like anybody else would expect to be able to do.
That right was extinguished in the first post-colonial land-grab of the 21st century by Labour’s Helen Clark-led government in 2004.
The leak on blog sites this week of comments highly critical of the ILG has already reportedly caused consternation among Ministers and officials heading for Waitangi – what with diplomats turning up for the first time since 1995 and everything.
The Exceltium document describes northern tribes, who host the weekend’s Waitangi Day celebrations, as particularly critical of the ILG, whom Hooton identifies as led by leaders hailing from three powerful, non-northern iwi: Ngai Tahu, Ngati Tuwharetoa, and Ngati Porou.
This is an allegation which already mightily embarrasses Tuwharetoa, an iwi virtually land-locked and claiming “no formal involvement” in the foreshore and seabed negotiatons. Rather, Tuwharetoa’s interest is in another such Iwi Leadership Group, which is working on freshwater allocation issues.
As you’d expect for an iwi whose only shores of significance are those of Lake Taupo, governed by fee simple title, Tuwharetoa is pursuing those issues with other iwi with freshwater interests like Tainui from the Waikato, Whanganui, and Te Arawa.
But what it also shows is that there is a whole new layer of activity occurring between iwi and this government, which is willing to take risks, have Ngai Tahu muck it up for the rest, and create forums in which real conversations between iwi with real concerns and a government serious about killing some old issues, can be had.
That’s the Pollyanna version, anyway.
And whether Hooton has over-stated Tuwharetoa’s role is perhaps insignificant.
The reality remains that the leaked document contained deeply critical comments from a Ngai Tahu Corp. staffer about the ILG dealing with foreshore and seabed issues that are dear to both Ngai Tahu and Ngati Porou.
Given the prominent role of Ngai Tahu operative Sacha McMeeking, this should concern Ngai Tahu.
“The precise role of the ILG is murky, as are its inter-relationships with the Maori Party, the National Party and government officials,” says the Exceltium paper. “The ILG does not claim to speak for Maori but is nonetheless seeking to influence the new foreshore and seabed policy framework so that it ‘better accounts for the rights and entitlements of iwi/hapu’.
“The new government’s approach to the issue initially had elements of commendable openness, transparency and good faith,” says Hooton. “However, once again, pivotal decisions appear set to be made by a small, informal group of iwi leaders, who names are not readily available and who do not even claim to represent Maori generally, but who appear likely to determine the Maori Party’s position on the issue.”
The paper draws on polling by Curia Research, the National Party’s pollster, and Excelsium’s analysis of an issue which precipitated the collapse in Maori electorate support for the LabourParty, the formation of the Maori Party., and almost certainly sealed the fate of the Helen Clark Labour-led government.
“Once again, pivotal decisions appear set to be made by a small, informal group of iwi leaders, whose names are not readikly available and who do not even claim to represent Maori generally, but whoo likely to determine the Maori Party’s position on the issue,” Hooton says.
Exceltium gained exposure to this group of iwi’s influence through its activity in the forestry sector, including as a PR adviser to Rank Group, owner of the Carter Holt Harvey forestry business. An ILG involving Ngai Tahu, Tuwharetoa and Ngati Porou was heavily involved during last year’s development of the Emissions Trading Scheme, which included $25 million in compensation for Ngai Tahu and other iwi whose Treaty settlement forests stood to be devalued by the application of ETS rules.
The Minister of Treaty Negotiations and Attorney-General Chris Finlayson ordered a review of the Foreshore and Seabed Act last year, and announced in mid-2009 that there would be a response within six weeks, with repeal likely.
However, the issue remains the subject of Department of Justice policy work and what Finlayson’s spokesman described today as “ad hoc consultation” with entities such as port companies and “regular consulation with iwi”.
A further round of public consultation will occur on a draft proposal before final decisions, he said.
The three person Ministerial review recommended a “mixed model” approach to dealing with the issue, “combining either a national settlement or regional iwi negotiations, with allocations of rights and interests, local co-management and an ability gain more specific access and use rights”, says Exceltium.
However, Hooton argues such a deal will not only involve backroom deals, but is more likely to spark a replay of the racially divisive debate that occurred when Labour extinguished Maori rights to access the courts in cases involving claims to the foreshore and seabed.
Polling of 750 people nationwide by Curia found solid support for both a reconsideration of the Foreshore and Seabed Act and opposition to the extinction of judicial rights, although less sympathetic wording showed only one-third of those polled agreed that “the Foreshore and Seabed Act was unfair to Maori as it took away their right to go to court”.
Hooton argues the judicial rights path is the only politically winnable and honourable path to choose, even though it would make a quarter of National voters less likely to vote National (and 14% of Labour voters more likely to vote National), according to the Curia poll.
“The National-led government can – just – build a majority around the judicial option. In contrast, any negotiated solution which emerged from a process involving the ILG, the Maori Party and National which is not based on any judicial decision, would lack transparency and integrity.”
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