Think big to restore trust: taskforce

Rob Cameron. Photo / Mark Mitchell

The Capital Markets Development Taskforce yesterday recommended the creation of a powerful single capital markets regulator and the partial privatisation of big state-owned enterprises to rekindle ordinary New Zealanders' faith in the sharemarket.

After 18 months of work, the taskforce yesterday presented 60 recommendations on how financial markets could be strengthened to benefit investors and companies seeking capital to fund growth.

As signalled in the taskforce's interim report in August, the spotlight was firmly on restoring investor confidence which has never fully recovered from the 1987 market crash and has suffered further blows in the finance company meltdown and global financial crisis.

After the report's release yesterday, taskforce chairman Rob Cameron told the Business Herald measures to foster a healthy investor environment were the report's most important content.

"Doing good things for our capital markets depends ultimately on the trust and confidence of retail investors.

"If you don't get the environment right for them you're going to find it much harder to introduce changes to other areas."

The taskforce identified the need for "substantial review" of regulatory agencies, Cameron said.

"We need consolidation. We have a plethora of agencies, their separation enables gaps to emerge, and it doesn't enable us to build the scale and expertise we need to enforce and monitor our laws."

The taskforce recommended merging much of sharemarket operator NZX's regulatory functions, the Companies Office, the Ministry of Economic Development's National Enforcement Unit and other agencies and combining them with the functions of the Securities Commission into one capital markets regulator.

"Today we know there's a big vote being taken in one high-profile area," said Cameron, referring to the investor vote on Hanover's proposed debt-for-equity swap with Allied Farmers.

"We think it's worthwhile drawing connections to the recommendations we make in this area."

Investment banker Cameron's prominent role in the privatisation of large state-owned enterprises two decades ago and his more recent comments meant, as he acknowledged yesterday, few would have been surprised by the taskforce's recommendation for partial privatisation of SOEs.

The rationale for privatisation was explicitly tied to the need for "better products" for retail investors.

"One of the things that stuck out to us was just the gaps in our market," he said. "Stuff that retail investors should easily be able invest in - good utilities and good infrastructure, with long, stable returns - they don't have the opportunity to do it.

"We think this is indeed a better way for the Crown to manage these assets, but to give our retail investors a better chance at getting successful outcomes this needs to happen and it will give [our market] depth and liquidity."

In a tacit acknowledgment of the likely public and political opposition to privatisation, the taskforce said the partial listing of central and local government-owned companies "need not compromise long-term control".

Labour MP Clayton Cosgrove, however, wasted no time in criticising the recommendation. "The Government's longer-term privatisation agenda means that partial listing is only one step away from selling off assets that properly belong to Kiwis."

Commerce Minister Simon Power said some of the recommendations would be examined as part of the review of the Securities Act.

He intends releasing associated discussion documents in the new year.

The wider recommendations would form "a key part of the Government's wider work programme for the financial sector".

"To demonstrate just how important we regard it, the Prime Minister will lead the response by announcing it early in 2010."

Cameron said the taskforce was heartened by the Government's response. "We think our recommendations can have a really big impact.

"If the Government were to be able to implement all of our recommendations today, including partial privatisation, we think in three or four years we could have a stock exchange that's twice as big as it is today."

THE PRESCRIPTION

Taskforce recommendations

* Partially list big SOEs, the obvious candidates being the electricity generators, which "need not compromise long-term control".
* Review regulatory landscape with a view to merging array of bodies including the Securities Commission into a single powerful regulator.
* Improve governance, disclosure and transparency of managed funds, improve the alignment of managed funds' long-term strategies with the interests of investors.
* Broaden the range of high-quality debt offerings. Encourage the Government 's Debt Management Office to consider their role in developing capital markets possibly by offering products targeted at retail investors.
* Free up unregistered markets such as Unlisted and allow them to act as "stepping stones" to the public markets.
* Build capability and scale in research organisations and their commercial activities.
* Lift New Zealanders' financial literacy, include investment literacy in the school curriculum.
* Develop NZ as a hub for agriculture-based international capital markets and also for international funds management services.

WHO ARE THEY?

The Capital Markets Development Taskforce:

Chairman: Rob Cameron, executive chairman of Cameron Partners.

* Franceska Banga, chief executive of the New Zealand Venture Investment Fund.

* Matt Benge, assistant deputy commissioner of Inland Revenue.

* Andrew Jackson, deputy secretary of the Ministry of Economic Development.

* Mike James, deputy secretary, Treasury.

* Jonathan Ling, Fletcher Building chief executive.

* Rob Mcleod, managing partner, Ernst & Young New Zealand.

* Gareth Morgan, Gareth Morgan Investments chief executive.

* Adrian Orr, New Zealand Superannuation Fund chief executive.

* Cathy Quinn, senior corporate partner, Minter Ellison Rudd Watts.

* Scott St John, First NZ Capital chief executive.

* Mark Weldon, NZX chief executive.

* Nigel Williams, managing director of institutional banking for ANZ National.

* Mary Holm, Weekend Herald personal finance columnist.