The private economy is full of opportunities for investors to help grow businesses.
Mike Jenkins looks at the landscape.
In New Zealand, there are thousands of interesting businesses, many of them operated by people of incredible talent, and wanting to grow. All these businesses need is investment at the right point to help them boost production, trigger exponential growth and catapult them onto the global stage. These thriving companies are types of business that are not traditionally considered within investment portfolios, as they haven’t traditionally been easy for individual investors to access. We call these ‘alternative investments’ – largely real assets like fractions of agricultural and property investments and syndicates, or private businesses. And they make great options to help diversify a more conventional portfolio, or as a stand-alone investment option. We’re now seeing a growing appetite for investment as New Zealand matures, and economies change – and I believe this is one sector that, if unleashed, could offer multiple opportunities in the form of both personal wealth and the country’s GDP (Gross Domestic Product).
Liquidity is an issue. What holds this type of investment back, financial advisers would say, is how hard they are to buy and sell (known as liquidity), and how it’s difficult to compare them to similar investments, track their performance and assess their viability as a strong investment. If these problems were solved, then they would become a strong investment, opening the door to a range investment options in the private economy.
Investors could enjoy returns from tangible land and income businesses or invest in small and medium-sized businesses (SMEs) as they look to sell down shareholding. If you can bring supply and demand together simply, that makes for some really interesting investments. New Zealand once relied on dairy as its main exporter, but today many other sectors are gaining pace, including fruit, horticulture and wine, but also primary sector innovations.
The economy continues to diversify, including into commodities and industries that are not reliant on the share market, making New Zealand an ideal location for investing in alternative asset classes.
How can you get started investing in this area?
- Understand the structure of units or share offerings.
- Look at the management structure of the investment.
- Compare it to other business investments – you may find it’s not that different.
- Check out the company’s financial history.
Look at the structure of the shareholders’ agreement. Something that’s worth considering with these types of businesses is the quality of the people behind them. Why syndication? Syndication is an ideal way of buying a small share in big assets that many of us can’t afford alone these days or you don’t have time to run full-time.
These categories have huge talent lying within them but are simply unable to afford an asset of this size, proving a symbiotic relationship for talented management and investment. An ANZ report highlighted the issues in this area. “Farmers face significant challenges in raising capital to fund growth and support farm turnover,” it says. “New structures for owning and operating farms need to be encouraged to attract investment from domestic and foreign investors and capital markets.”
Syndex: Buy and sell alternative assets. A lack of liquidity can damage an investment’s returns or simply put off a potential investor. This has been the number one concern voiced over this sector.
Syndex exchange brings supply and demand together in one place, providing a secondary market for these assets that overcomes this hurdle, and makes this a category that’s ripe for growth. It also supports businesses seeking to raise capital. Syndex brings together the demand for alternative investments within a previously untapped private economy market. It uses world-leading software and Kiwi ingenuity to bring a unique fintech platform to the global marketplace. Founder and Executive Director Mike Jenkins says: “Syndex provides a way into and out of proportionally owned assets, price discovery and information for both buyers and sellers.” Syndex also covers all your regulatory requirements, manages documents and runs communications between syndication groups, buyers and sellers. It offers tools you can use to can review investments, such as comparative data and historic figures.
Gross domestic product (GDP): GDP is a measure of a country’s market value. It covers all goods and services produced within a timeframe and can be used to compare nations.
Secondary market: When a unit or share in an asset is resold on a market, rather than being a new offer to the market.
Syndicate: A syndicate is a group formed to pool financial resources to execute a large transaction that would be hard or impossible for a single person to fund individually.
Vertical markets: The term ‘verticals’ in business refers to a market where businesses and marketers cater to the needs of a specific group of people within an industry; such as ownership of the manufacturer, distribution, and produce for production.
This article was written for and first appeared in JUNO Investing magazine