New Zealand Māori investment strategies revealed
The substantial settlements paid out to New Zealand Māori communities, known as iwi, by the Waitangi Tribunal have placed responsibility on each iwi to carefully manage those payouts, especially given they will have limited access to new capital.
A report out last week from New Zealand consultant TDB Advisory assessed the assets of the top 10 wealthiest iwi, which have a combined asset base estimated at around $5 billion.
“At the time of settlement, you get a lot of cash and then you’re starting from scratch in terms of expertise,” Alexander McKinnon, director at Koau Capital Partners, advisers to the Raukawa iwi, told AsianInvestor.
“So you begin by investing in liquid investments like managed funds. But because you’ve got a long term horizon you have the ability to invest in illiquid assets and harvest a premium from that illiquidity. So that’s been our process over the last 10 years, of going more into direct assets, which tend to be in traditional areas for New Zealand investors, commercial property, housing, agriculture, forestry.”
The Waitangi Tribunal was established to hear claims for redress for what are seen as breaches by the Crown of guarantees set out in the original Treaty of Waitangi of 1840.
Iwi tend to have similar governance structures, typically consisting of an overarching trust that sets the vision of the group and makes decisions about distributions to members – in the form of education, housing, health, etc – and to sub-tribes. The trust often also provides a mandate for a separate commercial entity that manages the group’s business and investments.
Iwi have adopted a range of investment approaches, with seven of the ten iwi – Ngāi Tahu, Ngāti Awa, Ngāti Pāhauwera, Ngāti Toa, Ngāti Whātua Ōrākei, Raukawa and Waikato-Tainui – taking a largely active approach. The other three iwi – Ngāpuhi, Ngāti Porou and Tūhoe – have taken a more passive approach.
In general, the capital structures of most of the iwi are conservative, with gearing ratios ranging between 0% (Raukawa and Tūhoe) and 15% (Ngāi Tahu and Ngāti Whātua Ōrākei). The exception is Wellington-based Ngāti Toa which has a gearing ratio of 43%. As a result, its investment return in 2022 was significantly higher than for its peer group.
HOME BIAS
Asset allocation and levels of diversification vary hugely. Ngāti Whātua Ōrākei and Ngāti Toa, for example, are heavily concentrated in property with 98% and 83% respectively.
Ngāti Whātua’s strong investment returns over several years are entirely attributable to its high concentration of assets in the Auckland property market, which has generated strong returns over the last decade, with the exception of 2022 and perhaps also 2023.
“In principle these iwi could reduce their exposure to risk without reducing their expected returns by expanding the geographic boundaries of their investments,” said the TDB report. They show no signs of doing so, however.
Iwi tend to have a strong home bias, long time horizons, and they typically have constraints on their ability to sell certain assets.
Whilst the Raukawa iwi’s bias is also towards local investment, its options are limited in their region of South Waikato. McKinnon said that, in common with others from relatively depressed economic regions, the iwi has had to be outward looking.
“Almost all of our investments are direct and everything we’ve done has been part of a collective, or with partners, for scale, efficiency and origination opportunities,” McKinnon said.
STEADY PERFORMANCE
With such a variety of asset mixes, investment returns vary, as do methods of reporting and valuation. Many iwi do not publish separate financial statements for their commercial arms.
TDB have constructed a reference portfolio designed to reflect the asset allocations of the iwi in their report. It is made up of property, primary industries, New Zealand equities and bond indices as well as short-term deposit rates.
Ngāti Whātua Ōrākei and Ngāi Tahu – the property-heavy investors – were the only iwi that outperformed the ten-year benchmark of 8.6% p.a., with reported returns of 12.2% and 9.5% p.a., respectively, over the last ten years.
The other six iwi all experienced average annual returns below the benchmark over the ten-year period, ranging from 3.7% to 8.5% p.a. In 2022, Ngāi Tahu, Ngāpuhi, Ngāti Toa, Raukawa and Waikato-Tainui all reported returns above their own ten-year average returns. Ngāti Toa's more aggressive gearing meant its investment return in 2022 was significantly higher than the peer group, at 31.9%.
Despite posting poor results in 2022 relative to other iwi, Tūhoe’s investment committee are sticking to their current asset mix. Aaron Hing, an investment committee member, told AsianInvestor the portfolio was reassessed at the onset of Covid in 2020.
“Our assessment was it wasn’t necessary to change. And even with the markets down last year, we are choosing to look through that. We are applying a very long lens, on the basis that this is inter-generational wealth.”
Hing said the iwi expects to meet some volatility, but that doesn’t impact the ability to fund their operations and build infrastructure within the iwi. However, he predicts the fund’s asset mix will be substantially altered in 10 years’ time, with perhaps the major portion invested in farmland rather than financial assets.