Should the NZX stick to its knitting, like the Reserve Bank?

ANALYSIS:

The New Zealand Exchange (NZX) has raised eyebrows for straying beyond its mandate, similar perhaps to criticisms hurled at the Reserve Bank of New Zealand.

If the central bank’s role is price stability, then the exchange’s is to operate and regulate a market where companies want to list and investors want to trade.

With limited listings in recent years and a number of well-liked companies leaving the exchange, the NZX is getting increasingly involved in investment management, having grown its passive funds management firm Smartshares to $10 billion in funds under management.

And it is spending up to $50 million in cash and shares to acquire active asset manager QuayStreet from Craigs Investment Partners.

In an extended interview on Markets with Madison, NZX chief executive Mark Peterson said it “provides the core market on one hand”.

From the outside, the NZX’s straying seems by some to be a money-making move to please its shareholders - the game plan being to grow a funds management division by capitalising off KiwiSaver and the popularisation of exchange traded funds (ETFs) and eventually sell the client book back to the industry for a sweet cheque.

But from the inside, it’s said to be a diversification strategy, to strengthen the business of the exchange.

“[The] NZX has been around for over 150 years. We’ve got to make sure that it’s around for the next 150 years,” Peterson said.

The New Zealand Stock Exchange has just acquired an active asset management firm in a deal worth up to $50 million. The move is confusing competitors. Photo / Supplied

Peterson was adamant the exchange was not eating the lunch of the major fund managers, namely Craigs, Jarden and Forsyth Barr, despite just buying a firm that would directly compete with them.

“We’ll see how we go over time. There are some discussions to have about just how we evolve those products and what the market wants,” he said.

“We don’t see ourselves competing directly with those other managers, ultimately.”

Ahead of the interview, I called around the capital markets industry. Fund managers were not only frustrated by the NZX’s foray, they were confused.

In an effort to explain its thinking, Peterson said most major stock exchanges had numerous strings to their bows, such as technology, although he did acknowledge the NZX’s strings were tied to the industry.

“We just happen to have gone down some roads which are closer to financial markets and financial services.”

Broadly, the stock exchange saw itself as an “infrastructure provider”, he said.

“We’ve got a capital markets business, we’ve got the funds management business and we’ve got a wealth tech platform.

“We thought that there was a market development opportunity around Smartshares, especially around ETFs and passive product. And we still do.”

This is when the money seemingly started to talk.

“We also like the fact that funds management has some tailwind behind it, when you think about where KiwiSaver is and where it will grow to.”

When asked directly if its funds management business was being set up to be sold, Peterson did not take it off the table.

“Time will tell,” he said.

“Right here, right now, they [Smartshares] are core to our strategy.”