Cashing in on venture capital

By TOM CLARKE

New Zealand investors are moving away from residential real estate into other investments, says an economist and corporate financial adviser, Brent Wheeler.

Dr Wheeler has joined venture capital consultants Ward Black & Associates as funds manager.

He says that as property investment has become less attractive, New Zealanders are investing elsewhere.

Property prices have come down and stabilised, he says, but other factors such as lower inflation and new and more attractive forms of investment are also having an effect.

"The days of investing in property and having inflation eat your debt away are definitely over," he says.

"Property investment made economic sense when we had high inflation, because that ate through the debt very quickly as wages increased and the buying power of the debt diminished, so it wasn't such a big burden to pay off.

"At the same time, you apparently got capital gains - a lot of that may have been illusionary because the capital gains represented inflation, and buying and selling in the same market is a zero sum gain. But to most people it was pretty attractive because the absolute numbers look pretty good."

Dr Wheeler says other forms of investment offer many of the advantages that real estate used to provide. One example is the sharemarket, where the same tax benefits apply for long-term holders, and dividends - like rental income - might be looked on as paying off the investment over time.

He says venture capital funds are a good way for people to capitalise on new-technology industries such as the internet and e-commerce, which he likens to a 21st century version of the Industrial Revolution.

"Venture capital offers the chance for ordinary people to capture some of the benefits of the undoubted revolution we're experiencing," he says.

"You can be any age, you don't need to understand how to get a rocket to Mars, and you don't even need to know how to use a PC.

"The venture capital market is a portal that allows anyone to participate in the returns of an exciting, stimulating and competitive environment, without having to be hands-on."

While the risks are often large, the stakes can be very high. The United States Nasdaq index of high-technology stocks grew 62 per cent last year compared with the 18 per cent growth recorded by the US Standard & Poor's 500 index, which is a mix of 500 other stocks.

Investment packages usually require a minimum initial investment of about $5000, with the option to increase the investment month by month. Investments can usually be sold or redeemed, depending on the terms and conditions of individual funds.

Dr Wheeler holds a PhD from Otago University, and is a former director of Wheeler Campbell Ltd. He has been an economic consultant to a wide range of private and state sector organisations, including Treasury, the Auckland Regional Services Trust, Telecom and the New South Wales State Government.

Dr Wheeler has also lectured in economics, geography and business at Otago, Massey and Auckland Universities, chaired a number of boards and companies, and served on Government committees.