Diana Clement: Yo ho ho and a few million bucks

Many an entrepreneur dreams of joining the rich list - but when they do, they're often shell-shocked, or so say those who have been there.

The champagne will have been flowing at the Morgan household this week now that Trade Me founder Sam Morgan, 30, will pocket $227 million for his share of the sold company. Mum and dad picked up $47 million too. But the Morgans face the prospect of some serious investment decisions. Fortunately for Morgan junior, dad is Gareth Morgan, an outspoken economist who runs Gareth Morgan Investments. The company offers "private managed accounts" to investors with more than $500,000 to invest - as well as more run-of-the-mill offerings for ordinary mortals.

Morgan is dismissive of the "cloak-and-dagger" products offered to high net worth individuals by some financial providers. "What a load of crap," he says. "Generally, that means no liquidity whatsoever [and] little transparency because of commercial sensitivity."

The likelihood is, if Morgan uses his father's firm for advice, that his dosh will be channelled into the same sort of products that less wealthy investors would use as well.

None the less, there are products that small-time investors can't access on their own but large investors can. Commercial property has a relatively high entry level compared with residential property, which means that many first-time investors buy just one property. But like other investments, you do need to spread your risk and buying just one property can be dangerous indeed should you lose a tenant. Smaller investors, however, can buy into syndicates or listed property funds.

Likewise hedge funds are often touted as investments for the wealthy. Yet they can be accessed as part of a portfolio offered by financial planners.

Morgan said the main difficulty with such a large windfall would be to invest the funds into such a small market as New Zealand without moving prices upwards. "In a funny sort of way you are more limited [with $227 million]," he says. "Liquidity is the real issue to investing that amount of money in New Zealand. It would be really difficult not to push prices against you."

The reality is that a fair chunk of Sam Morgan's money will probably find its way back into business - his own new ventures or those of others. Morgan senior said he would advise someone in the same position as his son to "just keep doing what you love doing. The money is irrelevant. It's the old saying: "If income = $100 and spending = $90 that is happy. If income equals $1 million and spending equals $1.5 million that is misery.

"There are only so many Mercedes-Benzes you can buy in life, if you like that sort of thing," Morgan senior said from his spa pool this week. "He [Sam] will go and build other stuff. Providing he doesn't s... in [Fairfax's] nest, he can do stuff outside the company."

It's hard to believe that anyone with Morgan junior's smarts would ever blow all his money. However, some wealthy people do manage to spend themselves into poverty. Oracle founder and CEO Larry Ellison spends, according to leaked emails from his financial adviser, US$20 million a year on "lifestyle". That doesn't include real estate or yachts.

The first question Morgan senior would ask a young client in his son's position would be what his consumption aspirations were. "If they are monstrous, he will blow all of his Lotto winnings. If they are measured, you will have a huge kitty." From there the money is split into metaphorical jam jars, says Morgan, and an asset allocation made.

Jeff Matthews, senior financial adviser at Spicers Wealth Management, said someone in Sam Morgan's position could put $100 million in a conventional investment portfolio until he was older, and do more adventurous things with the other $127 million.

He believes Morgan is likely to re-invest a fair chunk of his money into other business ventures. "Bill Gates didn't stop working when Microsoft became a success and Warren Buffett continues to enjoy buying businesses."

In the case of Sam Morgan, private equity investments may find favour. It is common for wealthy individuals with business acumen to do this - often getting involved in the running of the business they have invested in.

Smaller investors can enter the private equity market via funds and the New Zealand Venture Capital Association's website has plenty of useful links.

Brent Marris, who along with his father sold Wither Hills vineyard to Lion Nathan for $50 million plus, has one piece of advice for Sam Morgan. "Don't do anything for 12 months. Let the whole thing sink in and give yourself to reflect on what has happened." This, says Marris, who was 40 at the time of his windfall, was the best piece of advice he received from another entrepreneur.

When the news broke Marris' letterbox was "chocker" with prospectuses and he was cold called by a "plethora" of wannabe business people.

Marris decided to "stick to my knitting" and invested a fair chunk of his money back into the wine industry, buying 600 acres in Marlborough. Marris and his wife, Rosemary, stuck with their financial adviser, Steve Lock, who helped them invest the remainder of their money in a portfolio that includes shares, foreign exchange and property/subdivisions.

Roger Sutherland, director of Grant Thornton Wealth Management, said his company would treat someone like Morgan with the same principles as someone with a smaller pot of money to invest.

Morgan would be advised to start with "a good traditional portfolio" covering such things as local and international equities, foreign exchange and possibly hedge funds or bonds. What Sutherland would avoid is obscure investments often widely promoted for their tax benefits such as deer farming, goats or kiwifruit.

Kevin O'Sullivan, of OM Financials - a company that provides options and foreign exchange dealing - would allocate such a large portfolio in this way (see table):

For the high leverage, sexy end of the portfolio, O'Sullivan would invest in products like options and foreign exchange trading, and higher return/risk funds. "We run a managed currency account at OMF and if you had invested say $10 million five years ago, your $10 million would now be worth $28.1 million. This account has audited returns of 23 per cent pa for the past five years. Minimum investment is $1 million."