CEO's Report

Dear shareholder,

In 2014, we embarked on our strategy to increase NZX’s presence in two key areas of New Zealand’s funds management sector: passive funds management, in particular Exchange Traded Funds (ETFs), and funds services infrastructure.

Underpinning this strategy is the fact that New Zealand’s funds management industry has significant growth potential. Total funds under management in New Zealand total more than $110 billion, with KiwiSaver funds under management sitting at $30 billion. This is expected to grow at more than 18.5% per annum to $70 billion before 2020. This compares to an expected long-run growth rate of 7 - 8% in our equity markets.

ETFs have historically had a low market share in New Zealand of less than 1% of total funds under management. This is despite the range of benefits that ETFs offer investors including diversification, low fees, flexibility and transparency. It is also in contrast to most global markets, including Australia, where growth in ETF funds under management was 42% in 2015.

NZX has historically had a relatively small presence in funds services. Our Smartshares business launched New Zealand’s first ETF in 1996, over time expanding the portfolio of ETFs on offer to five in 2006.

After a comprehensive review of our strategy, our view was that with only five ETFs on offer in our Smartshares business, our product range was not broad enough to develop a viable ETFs business in the New Zealand market.

NZX therefore acquired passive superannuation and KiwiSaver provider, SuperLife, in January 2015. This acquisition enabled us to launch a broad range of ETFs – from December 2014 through 2015, Smartshares launched 18 new ETFs, bringing the total number on offer to 23. The portfolio of ETFs we now have on offer provide investors with the opportunity to invest across all main asset classes: cash, bonds, shares, and property, in New Zealand and offshore.

As a result of the acquisition, NZX Group now comprises the ninth largest fund manager and the tenth largest KiwiSaver provider in New Zealand.

The acquisition of wealth management platform Apteryx in July 2015, and our subsequent ongoing investment in that business, has provided NZX with the opportunity to offer smaller fund managers, advisors and their clients with a next generation fund administration platform. Of the $115 billion of funds under management and under advice in New Zealand, only an estimated $30 billion are currently administered through platforms that provide comprehensive reporting, tax compliance and custodial arrangements. And, in our view, the platforms currently offered have not evolved to meet the changing needs of our market.

At the same time as the Apteryx acquisition, NZX reviewed its 50% shareholding in leading New Zealand share registry Link Market Services NZ. After more than 10 years in a successful joint venture with Link Group, both partners felt that it was an appropriate time for one to take full ownership of the business to support Link NZ’s future growth. Accordingly, we decided to sell our stake to Link Australia.

The sale of Link NZ realised significant shareholder value and is consistent with our approach of exiting businesses when we consider that either we are no longer the highest value shareholder or that the prospects for the business have materially changed. We remain committed to investing in and growing areas of the capital markets that are underdeveloped, where we see value for shareholders, and where we can contribute to the long-term development of New Zealand’s markets.

Business structure

Following our acquisition of SuperLife and Apteryx, we are now managing the NZX business in three distinct groups, reflecting each business’s growth prospects and investment requirements. These are:

  • Markets – this includes our capital markets activities that revenue from capital raising, trading and clearing, listings, participant services, securities data and derivatives. It also includes the Fonterra Shareholders’ Market and our energy markets business, which comprises the contracts we operate on behalf of the Electricity Authority
  • Funds services – this includes our Smartshares, SuperLife and Apteryx businesses
  • Agriculture – this includes our print and online publications, data and analytic reports in Australia and New Zealand, and the Clear Grain Exchange in Melbourne

While managing these businesses separately, we continue to benefit from the connections between them. The growth in our funds services business will help to broaden the range of traded products available to retail and wholesale investors, provide a more efficient market infrastructure, improve the distribution for funds – and enhance trading, compliance and reporting for advisors and smaller fund managers. In turn, we expect this will facilitate new entrants (investors, advisors and fund managers) into our market and ultimately benefit the capital markets business more broadly.

In addition, our agricultural businesses provide data and information to support development of all of our markets, including our dairy derivatives market that continues to demonstrate strong growth.

Our focus going forward Markets

In New Zealand’s capital markets, our priorities over the past three years have been to:

  • ensure we have the regulatory and operational resources and a robust technology platform and governance structure in place to operate fair, orderly and transparent markets. While this remains a priority, the remedial work is complete, as acknowledged by the Financial Markets Authority’s 2015 General Obligations Review. Pleasingly, the report concluded that NZX complied with all of its statutory obligations in 2014 and was not required to take any specific actions
  • implement a sustainable foundation for growth. This includes the establishment of a dedicated Markets team and the upgrade of our trading and clearing infrastructure, which required additional investment to maintain the operational standards that NZX’s core role as market operator necessitates
  • grow the number of ‘products on shelves’ for New Zealand investors. This has been a key focus for our Markets team and is demonstrated by:
    • increasingly effective management of the IPO pipeline by active engagement with private companies, their shareholders, and advisors
    • sustainable growth in NZX’s debt market. New debt issues were up 374.3% in 2015 with $8.1 billion listed, including the listing by the Local Government Funding Agency of all six existing series of its bonds, representing a total principal amount of $5.6 billion
    • the launch of the NXT market, a tailored and innovative market aimed at smaller, higher growth companies. NXT is a significant development in New Zealand’s capital markets and will provide a foundation for future market growth, however, like all new markets, NXT will take time to develop. We continue to see good interest in NXT from potential listed companies, despite the volatility in global markets in early 2016
  • build a world-leading dairy derivatives market. To date, our dairy derivatives market has shown significant success in enabling participants to manage global price risk in the global export market. Lots traded in this market were up 111.5% in 2015

In 2016 our efforts are focussed on the last two points: growing the range of traded products available for investors across our equity and debt markets, and continuing to grow our dairy derivatives market. The latter will include working towards the launch of milk price futures and options contracts (subject to regulatory approvals).

Building a strong IPO pipeline of small and mid-size companies remains a key area of focus. While there are a large number of small and mid-sized businesses in New Zealand seeking growth capital, especially in the technology sector, a number have had more success raising capital offshore, establishing a pathway to an eventual listing outside New Zealand. This is despite the significant growth in KiwiSaver assets under management, which was up more than 21% or $5.4 billion in 2015, and the relatively low allocation of those funds to growth assets. This reflects the structure of the KiwiSaver scheme, the concentration of the funds management sector and the risk aversion of KiwiSaver investors and their providers.

While NZX has and will continue to support the listing of smaller businesses through initiatives such as NXT, and the development of smaller fund managers through Apteryx, a concerted effort is needed by all capital market stakeholders to ensure the portfolio of KiwiSaver assets can be used to supply capital to grow smaller New Zealand businesses.

In August, the Electricity Authority reselected NZX for the provision of our existing four market operator service provider roles. As part of providing these services, NZX will undertake a major overhaul of the systems that NZX develops and maintains to facilitate the efficient operation of the New Zealand electricity market, over approximately the next two years. This will be a key focus for the team and will leverage the capability we have built up over many years to support the development and operation of other markets.

Funds services

Our funds services acquisitions have provided a platform for significant growth. This year, our focus is to grow these businesses and promote the benefits of passive funds beyond ETFs and KiwiSaver, and for Apteryx to reach breakeven through customer acquisition and the further build out of its new platform.


Low commodity prices continue to impact our agri businesses on both sides of the Tasman. Lower grain prices early in the 2015/16 harvest resulted in a smaller share of grain being traded, hence lower volumes. In New Zealand, low dairy prices have impacted advertising revenues across our publications.

In 2016, our focus is to keep maximising the connections between our markets and agricultural business, particularly in data, while managing the transition from print to online publications, and maintaining the underlying economics of the businesses in a difficult market environment.


We continued to strengthen the organisation in 2015. We appointed Aaron Jenkins (formerly Head of Markets) to the new Head of Funds Management role, and we appointed Mark Peterson to lead the Markets team. Mark has extensive experience in the New Zealand securities market, most recently as Managing Principal of ANZ Securities. Since joining, Mark has made a significant contribution.

Given the increasing breadth of the business, in particular the growth in funds services, we appointed Kristin Brandon as Head of Compliance to oversee compliance with our legal obligations and internal governance processes across the organisation. Robyn Dey, who held a number of roles including Head of Regulation and Head of Policy and Legal, during her five years at NZX, resigned in February. As a result, we appointed Hamish Macdonald as Head of Policy and Legal.

As a result of the two acquisitions we made last year, we added around 60 new staff to NZX from the SuperLife and Apteryx teams. Bringing those teams on board was a significant effort for a large number of people at NZX, especially when we are a relatively small organisation. I would like to thanks those in our finance, human resources, communications and operations and technology teams for making everything happen in a seamless fashion.

Thank you

I would like to thank everyone in the team at NZX for your hard work and professionalism, and for making a valuable contribution in the development of our business and our markets.

Finally, on behalf of everyone at NZX, I would like to thank our shareholders and other key stakeholders, for your continued loyalty and support.

Tim Bennett