Poorest performing iwi invested in large farms, ANZ report says

Tuesday 14th August 2018

The poorest performing iwi investment in recent years has come from farming, which is often favoured for cultural rather than economic considerations, according to the latest annual ‘Iwi Investment Insights’ report by ANZ Bank New Zealand.

In its 2018 annual ‘Te Tirohanga Whānui’ research report, ANZ evaluated the asset base of 34 iwi and hapū, finding the commercial assets of the combined group had increased by just over $1 billion, or 12 percent, to $5.4 billion since 2015. The report found the most common asset in the top quartile for underlying returns was the significant holdings in managed funds which have performed well in recent years. On the flip-side, most iwi/hapū in the lower quartile were actively managing large farms.

“In many cases cultural reasons were an important driver in the investment decision," ANZ head of Māori relationships David Harrison said. "This highlights non-economic considerations may be impacting financial outcomes."

ANZ noted iwi have about a third of their assets in the primary sector which means they are exposed to commodity cycles as well as new challenges confronting many of these industries.

"Both fishing and farming face increasing sustainability scrutiny, and along with forestry, all three are threatened with disruption from alternatives being developed by science and technology," the report said. "However these assets have largely been returned to iwi through settlements, or have been purchased with cultural considerations in mind, and are generally considered ‘not for sale’.

"This places increased pressure on the rest of the assets to ensure they are allocated or re-allocated to best fit investments that provide greater returns with the right balance between income and growth."

Three-year average returns varied across the group with the upper quartile for ‘return on assets’ almost twice that of the lower quartile, the report noted.

The Māori economy is estimated to encompass $50 billion in assets, or about 6 percent of the total New Zealand asset base, and represents a rapidly growing segment of the wider New Zealand economy, ANZ said. Since the first settlement under the Waitangi Tribunal process in 1989 in respect of land at Waitomo Caves, Māori businesses have become economic powerhouses with investments spanning across hotels, farms, forests, bus companies and shopping malls.

“Māori investment has historically been focused in key industries such as farming, forestry and fisheries. While strong ties to these industries remain, Māori are strengthening their footprint in other sectors. For example, we’ve seen a number of recent investments in tourism, horticulture and commercial property which is exciting for iwi," Harrison said.

ANZ found the biggest year-on-year growth from 2015 to 2017 was from transport and infrastructure, up 33 percent, and tourism, up 30 percent, both from growth in existing businesses and new acquisitions.

Cash and managed funds grew 19 percent from treaty settlement receipts and general growth in financial markets, and agricultural investments also grew 19 percent from investment and some treaty negotiated transfers/purchases. Meanwhile, forestry returned 9 percent and property 8 percent from a mix of investment and revaluations.

Harrison said one of the hardest commercial decisions iwi face is whether to distribute or reinvest profits.

“There is pressure to increase returns and distributions, driven by growing populations hungry to see the tangible fruits of their tribe’s treaty settlement," he said. “Opposing the need for strong financial return is the deep responsibility iwi and hapū carry as kaitiaki, often creating challenges in balancing risk and reward.”

The overall trend for post-settlement iwi has similarities to a start-up business where initially capital growth is modest before it starts to build, he said.

“At one end we see iwi with recent treaty settlements typically benefiting from asset transfers and revaluations, and low initial operating costs. Meanwhile, iwi who settled more than 10 years ago are seeing the advantage of having miles on the clock. However, some of those 4-9 years are showing signs of stalling or consolidating."

The report found the overall proportions invested in various asset classes remained reasonably stable.

(BusinessDesk)

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