Attractive rates offered by ‘bank alternative’ don’t come risk-free - Andrew Barnes

Derek Handley believes aspiring first home buyers often don't maximise investment opportunities to grow their savings. Photo / Dean Purcell

Perpetual Guardian founder Andrew Barnes cautions a new investment offering, targeting those saving for a first home, isn’t risk-free.

Entrepreneur Derek Handley has just launched Aera – a financial services platform pitched as a “bank alternative”.

The first two products Aera is getting off the ground are “Deposit Accelerators”, which it says are “like savings accounts” with very attractive interest rates.

The idea is that people use these Deposit Accelerators to grow their savings, before using a product – to be unveiled later this year – aimed at helping those with tiny deposits of as little as 2.5 per cent, to get into their first homes.

Barnes – the four-day week pioneer who held top jobs at major investment banks before founding Perpetual Guardian – said people shouldn’t confuse Aera’s Deposit Accelerators with regular term deposits.

Indeed, Aera’s website explains users who would like to be able to access their money with a day’s notice will have their funds invested in Kernel Wealth’s Cash Plus Fund.

The fund invests in short-term interest-bearing assets and other New Zealand fixed-income and floating-rate note assets.

Aera users who want to earn a little more interest, but are happy to wait 30 days before being able to access their funds, will have their money invested in cash (20 per cent) and short-dated bonds issued by Mercury Energy (60 per cent) and Heartland Bank (20 per cent).

Barnes didn’t take issue with how Aera users’ money was invested. But, he stressed, the potentially unsavvy aspiring first-home buyers Aera was targeting needed to be mindful they were “investing”, not putting their money in term deposits.

He warned that if there was an event that triggered a bunch of investors to suddenly want to get their money out, Aera may need to sell its bonds to get the cash.

But if the value of the bonds had fallen, it could be in a tight spot.

This is what happened to Silicon Valley Bank, which was very exposed to US government bonds that lost value as interest rates rose.

Andrew Barnes says investing via Aera still involves an element of risk. Photo / supplied

Of course, no investment is risk-free. Barnes just didn’t want Aera users to think the risk was the same as putting their money in the bank.

While bank deposits aren’t yet guaranteed (government officials are still designing an insurance scheme), he believed banks are well capitalised and would likely be bailed out by the Government in the event of a collapse.

Handley was confident Aera’s liquidity risk was well managed and users would be able to access their funds as promised.

He noted the overnight Deposit Accelerator invested in cash and cash equivalents, while the bonds the 30-day Deposit Accelerator invested in were short-dated.

As is made clear on Aera’s website, the interest someone would receive for putting their money in either one of these Deposit Accelerators would fluctuate depending on the performance of the assets invested in.

Aera has launched as interest rates in New Zealand are likely near their peak in this economic cycle. So, rates look attractive by historic standards.

Notwithstanding this, at 5.95 and 6.45 per cent, the rates its two accelerator products are “targeting” are higher than the vast bulk of banks’ term deposit rates.

Handley said Aera would screen those who wanted to invest through it, saying it wouldn’t accept funds from those who already own property.

While there are a number of ways aspiring first-home buyers can invest in bonds, cash and investment funds (including Kernel Wealth’s funds), Handley said his research suggested they often don’t do so. Hence, he saw an opportunity to help.

Herald personal finance columnist Mary Holm said savers could take a savvier approach themselves by investing in assets that match their risk profiles.

Someone who aimed to spend more than 10 years saving for their first home could invest more in equities via a growth KiwiSaver fund that is higher risk, but likely to produce higher returns over time.

Meanwhile someone who wanted to buy their first home in, say, three years’ time could put their savings in a conservative KiwiSaver fund that didn’t expose them to the ups and downs of the market.

Holm didn’t want to be a “wet blanket” but believed there are existing offerings that are easy enough to understand and access.

Handley last year raised $44 million from the billionaire Fukutake family and others for Aera’s venture capital fund, which has put money into Dawn Aerospace and other startups. Handley said the venture capital operation is separate and funds for Aera’s financial services platform will be held in a trust.

He’s been a director of Sky TV, was appointed the Government’s chief technology officer, before the role was disestablished due to a political controversy, and co-founded a mobile marketing company – The Hyperfactory – which was sold to US media firm in 2010.

Handley co-founded Aera with James Abbott, a former Westpac major client group manager who served as Laybuy’s chief operating officer up to the time of the buy-now, pay-later firm’s ASX listing.

Aera is backed by private investment firms, Still and Icehouse Ventures, and charitable trusts, Whakatupu Aotearoa Foundation and Aera Foundation.