To remarkably little coverage (or PR fanfare) the New Zealand "Capital Markets 2029" report came out on 10 September 2019.

Kris Faafoi, the Commerce Minister, seemed to kick it for touch (NBR interview) which means it will now wait a National government I guess, or perhaps he is waiting on MBIE to digest the 101 page report (about half of which are strange stock photos).

I think its a superb report, and to save you time dear reader, I have pasted the parts to do with private capital markets below in italics with the relevant page number, and my comment.

Capital Markets 2029 Report CoverGrowing New Zealand’s Capital Markets 2029
A vision and growth agenda to promote stronger capital markets for all New Zealanders

Summary
Key trends in New Zealand Capital Markets
We have observed a number of trends that could undermine the effectiveness of capital markets and have long-term consequences for the country’s wealth if left unaddressed:
- A KiwiSaver regime that encourages saving, but fosters investment predominantly in lower-growth assets and has limited exposure to private markets.
- Private markets that are working well and growing, but not necessarily serving the full range of New Zealand investors, nor the full range of investment stages.

Recommendations
Each of our recommendations is designed to improve capital markets in one or more of the following ways:
- Offer more choice of investment for individuals, both within KiwiSaver and more generally.
- Grow the private capital ecosystem in New Zealand.
p.11

I strongly endorse this move to invest more in the private markets through the KiwiSaver industry. The private markets IMHO have stronger returns albeit with higher risks, not the least being liquidity. However, if only the wealthy have the option to invest then they will continue to increase their wealth at a higher rate than middle-class savers—surely in tune with Labour government policy.

KiwiSaver
Allow members to self-direct and invest with multiple providers.
p.12

Behavioural economics suggests this is a poor idea of course, the more a retail investor tries to play the stock market the more likely the investor will have poorer returns. But I guess it is their money, and it ties into my next point.

Market development
Increase development of growth capital industry in New Zealand.
p13

If a retail investor allocated their investment between specialist providers then this may help the private markets. But only if they invested in a fund that offered private investments. I feel a little queasy about retail investors making strategic asset allocation. They may fail to see that their asset allocation across providers doesn't match their risk profile. Again, it's their money though, so the default should be advise not restrict.

Global Trends

Shrinking public markets are an obvious trend in developed global equity markets. There has been a halving of the number of listed companies in countries such as the UK and US since the mid-1990s; new listings have decreased substantially (by around two thirds) and the amount of capital raised on stock markets has more than halved. Listed companies are getting larger, on average. This is shown by the increase in median market cap of listed US companies from US$2 billion to US$6 billion over a similar period. IPOs of companies are occurring later in a company’s life and are also growing in average size.

It is extraordinary how capital markets have changed, halving of listed companies, new listings decreased by two thirds, meanwhile private markets continue to expand.

[Big tech] companies have then bought a great number of other companies that may otherwise themselves have listed.

The rise in passive investment in conjunction with the increased scale and complexity of the financial services industry has changed the economics of the industry. This has helped create a highly efficient market for capital raising and trading for the larger companies and had the opposite effect for smaller companies. Trading commissions have declined and broker research coverage is generally declining.

The rapid growth of private capital over the past 25 years provides an alternative source of funding.

The cost and burden of listing is perceived as high.
p.16

One theme with this report is how difficult it is for a small company to be listed. In this case, the lack of stockbroker research due to the cost of provision vs the trading commission revenue is a real concern for the public market.  I think the FMA needs to be clear on whether you need to have independent research, my AFA training said I did, but it seems like this is very unclear (like the definition of a wholesale investor, see below).

What’s working well in New Zealand?

New Zealand’s technology sector is growing rapidly.

New Zealand’s capital markets have benefited from innovations and disruptions from new entrants.
There have been recent advances in crowdfunding, peer-to-peer lending, robotic / AI advice, equity research and fractionalisation of investment opportunities. KiwiSaver providers and alternative asset exchanges have provided further investment opportunities for a greater number of domestic investors.

New Zealand’s private capital market (spanning private equity, venture capital and angel investment) has developed significantly in the last decade. There are now more fund managers here, all with larger investible funds. This trend is consistent with global themes which many see as systemic rather than cyclical change.

Private markets on the angel side and the private equity side have certainly boomed with VC and mid-market struggling to raise funds. See my Sir Eion Edgar episode on this and the "funding gap" point below.

What’s not working well in New Zealand?
...
• On the other hand, private market assets such as private equity and other unlisted investments have grown significantly in recent years. However, these are less accessible to individual investors. Again, this is a global trend, although New Zealand’s capital pool is shallower than larger markets.

The wealth gap is probably due to many things but the lack of access to high returning assets seems to be a significant contributor. Providing better access to private markets will help savers get similar returns to high network individuals and families.

• We have heard from many submitters about the so-called ‘funding gap’, being the difficulty New Zealand businesses have in raising capital from in the region of $2 million to $10 million.

Yes. Angels on one wide, private equity on the other, too small for IPO, leaves trade sales often to international investors.

• Over the longer term, KiwiSaver will likely become the biggest single savings asset of most New Zealanders. Although KiwiSaver has many positive features, most managers focus almost solely on liquid assets due to transferability by members between schemes and daily unit pricing. Globally, pension funds are significant investors in illiquid asset classes. Without changes, KiwiSaver members will be unlikely to gain exposure to this growing asset class.

A retail investor on average won't need their savings for decades. This lends itself to investing in illiquid decade-holding long term assets like PE and VC funds with higher returns as per Yale's David Swensen long term alternative asset strategy. However, you have to stay in the investment for a decade which a retail investor may be reluctant to do. Probably best if they invest through public and private market funds that have sufficient liquidity to handle investor exits. Interesting area.

• Many participants in the industry have interpreted the regulations for advising retail investors in the capital markets more conservatively than perhaps was intended by the regulator. This resulted in a focus on stocks covered by research, typically larger stocks. Unless this changes, the smaller end of the listed market may stagnate over the longer term, making it less attractive or feasible for smaller companies to list.

Yes, I was told I needed research to recommend to clients by industry trainer Strategi. Seems a good one for the FMA to provide guidance on and could be a quick win.

While these regulations have lifted the standard of advice, they have also reduced the availability of investment advice.
Many of the challenges identified above can be attributed to one or a combination of fundamental causes: New Zealand being a small market,a globally rising tide of regulation, and undue conservatism for risk taking.

p.17

Regulations are a paradox. There to protect the average retail investor, they can limit access to good advice resulting in poor outcomes for the people they are trying to protect. It's not just the lack of availability of advice but also availability of the alternative investment asset options too.

KiwiSaver Recommendations

Allow members to self-direct and invest with multiple providers.
KiwiSaver members have little or no access to unlisted asset classes common in overseas retirement savings plans.
There is a significant mismatch between the liquidity of investments owned by members and the expected investment duration of KiwiSaver. Most providers have highly liquid portfolios (generally concentrated in cash, bonds and listed equities).
Only a handful of managers we spoke to have funds that invest in illiquid assets and such assets are a small portion of those funds. There is a need to maintain some liquidity because members can change providers with 20 days’ notice, but the majority of members in growth funds are unlikely to gain access to private market assets under current settings and existing approaches by investment managers.

For those who thought this review was all about increasing NZX listings and public market investment need to read the above recommendation again...

We recommend that all KiwiSaver members have the ability to invest with more than one KiwiSaver provider. This will allow for greater product innovation as well as competition amongst KiwiSaver providers under this proposal.
KiwiSaver members looking for a wider range of specialist investment options should have the ability to choose and allocate a certain contribution or balance to a second KiwiSaver provider who may offer greater access to a range of investments, including illiquid investments where liquidity risk would sit with the member rather than the provider for a fixed period of time. This gives investors greater flexibility and choice without having to switch all of their investment from one provider to another.

Good idea!

We also recommend a full, self-directed KiwiSaver option where members choose their own investments and registered providers hold the chosen investments in a custodian-type arrangement for each specific member.
Under this model, the KiwiSaver member would bear the liquidity risk of their investments, rather than the provider, as is the case under the current model. We are aware of at least one fund where members can choose their underlying investments from a given list. However, in this case, liquidity risk still sits with the provider and the investment choices are generally liquid assets. Moving to a self-directed model would allow members to invest in less-liquid assets such as private equity and other funds. This gives members greater choice and control over their investments and creates a more diverse market. It also maintains direct retail investor participation in the market.

I think if we're going self-directed we should also allow business owners to do what their counterparts in the US and Australia can do—treat their business as a retirement investment with a custodian holding the assets.

We are not suggesting that self-directed KiwiSaver investment will suit all members or that adoption will be significant. Even if only a small fraction of members moved to this model, it would increase diversity in New Zealand’s capital markets and encourage further innovation from existing and new KiwiSaver providers in investing in unlisted and less-liquid assets.
We do not support a self-management option where members manage their own KiwiSaver funds outside a registered KiwiSaver provider. This option has led to worse outcomes in Australia, particularly for accounts with smaller balances.
p.25-26

We do not favour the specific mandate that default funds be used for capital markets’ development. Although this may seem counter intuitive given the purpose of this report, we think our other recommendations are capable of achieving market development via commercial means and investor choice rather than a mandate imposed upon the default funds and their members. Indeed, this view extends to imposing any market allocation or asset allocation criteria on KiwiSaver generally.
p.27

Agree.

Simplify disclosure requirements for regulated offers

The PDS is much better than the lengthy combined investment statements and prospectuses required under the previous legislation. However, feedback indicates that they are still unnecessarily long and complex for retail audiences for IPOs of equity securities. Market participants also observed that the PDS is designed for a retail audience, yet it is generally advisors and institutions making investment decisions. This is not optimal given that almost all IPOs in New Zealand over the last 10 years have not featured a general ‘public pool’ to allow retail investors without a broker to invest, with the notable exception of the MOM IPOs. Furthermore, disclosure requirements for retail investors are inconsistent between the public and private capital markets. Higher-risk investments in the private capital market have no legislated disclosure obligations.
p.35-36

Wait a second! You want private markets to have all the disclosure regulations of public markets with all the attendant issues raised in this report? I think you mean public market disclosure should be more like private market...just to be clear 😉

Revise the definition of wholesale investor

As outlined elsewhere in this report, there has been a global rise in the importance of private markets compared with public markets. This means many investment opportunities are only available to investors who can participate without needing to receive regulated disclosure documents, and many investors have had comparatively limited access to investment opportunities. In New Zealand, the FMCA sets out various tests for wholesale investors to access these private investment opportunities through the criteria set out in Schedule 1 of the FMCA, and provides for ‘safe harbour’ certificates to be provided (which are generally optional, but on which the issuer may rely, unless they know the certificate is wrong).

One of these types of wholesale investor is an ‘eligible investor’ who, unlike other types of wholesale investors, requires an eligibility certificate. The current criteria are subjective and there may be differing interpretations as to the extent of experience required to be considered an eligible investor (for example, whether investment experience in the exact type of financial product is required, or whether general experience in investing is sufficient).

We recommend the introduction of a further avenue to eligibility. This would provide an alternative to the current requirement for eligible investors to certify their experience in acquiring or disposing of financial products that enables them to make the investment without the full regulated offer provisions applying. Under the alternative, eligible investors should be able to certify that they do not require the usual information that would be available to them for a regulated offer, that they acknowledge there is a risk they may lose some or all of their money, that they understand that there may not be liquidity or regular disclosure, and that there are risks in concentrating their investment in any one investment or type of financial product.

The procedural requirements in clause 42 to 47 of Part 3 of Schedule 1 of the FMCA should generally continue to apply. However, an eligible investor certificate (to the effect outlined above) should be required for each new investment that relies on these new criteria, rather than being a standing certificate for each eligible investor. The authorised financial adviser, qualified statutory accountant or lawyer providing written confirmation of the certification in accordance with clause 43 of Part 3 of Schedule 1 of the FMCA should not be allowed to do so if they are receiving any financial compensation (other than a fee for signing the certificate) in relation to the investment (such as a commission or referral fee).

A broader self-certification regime, as suggested, would give all New Zealand investors increased access to private investment opportunities. All investors would be able to participate in these opportunities, so long as they certified they were willing to bear the heightened risk of doing so.

If thought necessary, monetary limits could be applied to the amount of capital to be raised from an eligible investor in this manner, with this monetary limit also applied on an investment-by-investment basis.
p.40

I strongly endorse this approach. It's become very difficult to understand who is a wholesale investor. I understand that the large banks are so concerned about the wholesale investor definition that they demand their AFAs assume everyone is a retail investor—including local government clients!

FMA to issue guidance in respect of the Code of Conduct
Financial advisors are hesitant to recommend equity products where research is not readily available, even though this was not the intention of the current legislation. This means that many small market capitalisation stocks receive limited focus by the broking community.
p.41

Agree, an unintended consequence for sure.

New Zealand economy and market development

Many capital markets participants have observed that there has been a significant step-up in capital availability from sources such as private capital (both globally and locally) and angel investment (locally). However, they note there seems to be a disproportionate gap in the area of venture capital raises in the region of $2 million – $10 million.

This means that some companies have either not accessed capital or have needed to access equity capital outside of the New Zealand capital markets. One suggested cause of this gap is that New Zealand has developed a very active angel investment community over the last 10 years, providing a large pipeline of companies seeking funding. Another suggested cause is a lack of venture capital managers who have been able to attract capital to invest, perhaps driven by the lack of track record of returns for the sector in New Zealand and the challenges of raising a fund in which management fees are sufficient to cover operating costs. That said, there is plenty of evidence that a number of companies are still successfully raising money in this range, and at this stage.

The Government has announced, as part of the 2019 Budget, it will establish a new $300 million fund to help New Zealand firms expand beyond the early start-up phase. The $300 million fund will use $240 million of contributions that would otherwise have been allocated to the New Zealand Superannuation Fund between 2018 and 2022, and $60 million from the New Zealand Venture Investment Fund’s (NZVIF’s) existing assets. It is anticipated this funding will be committed to qualifying funds on a matched basis.

We are encouraged by the Government’s market development initiative to commit $300 million to assist New Zealand firms expand beyond the early start-up phase but caution that it will take time to deploy the funds, and longer to see evidence of investment outcomes.
p.54

I think this is half correct. Agree with the VC early-stage investing funding gap but also believe there is a funding gap for mature fast-growth companies with EBITDA $2-5M. The only discussion in this review has been about the difficulty of IPOs but PE firms are also reluctant to invest in this lower mid-market range. I've been pushing search funds as one answer but otherwise its trade buyers or wealthy individual investors (or the company self-funded).

Increase development of growth capital industry in New Zealand

Around the world and locally, many companies are electing to raise additional growth capital from private markets rather than public markets. Capital markets participants note that private capital also offers investee companies access to strategic networks and relationships. With the additional source of funds available, we would encourage NZVIF to collaborate with relevant industry bodies and existing funds to grow the industry. This would promote further benefits for the end users of capital and increase the number of growth funds locally, subsequently raising the available pool of growth capital for companies looking to expand beyond their early start-up phase.

The institutionalisation of this sector and other recommendations within this report, such as the choice of self-directed KiwiSaver funds and easier certification to invest in non-registered offers, should increase access of individuals to these type of funds, and private funds more generally. In the longer term, a more active growth capital sector based in New Zealand may increase the pool of companies that could consider a move to the local public markets.
p.55

It's good to see that the group sees private capital markets as offering a pipeline of public listings not replacing listings. I think that the pipeline has got longer as much as it has got smaller.

The larger end of the listed market is working well. It is liquid, well-researched and relatively easy for already listed companies to raise additional capital. However, New Zealand has seen a dearth of recent IPO activity, while private markets have grown.

Early stage, high growth companies with global ambitions

These companies are typically founder-led and have sourced their preliminary funding from family and friends as well as the angel investment networks. Due to their focus on product development and building scale quickly, these entities are generally not yet profitable and have minimal tangible assets. Most do not view listing as the pathway to raise capital in the short term as they view their ideal capital partner to be a high profile VC fund (usually international) who can provide not just capital, but also access to networks, advice, a halo effect and greater access to investors in subsequent rounds. Further, these companies generally believe they do not have resources at present to commit to governance and continuous disclosure standards applicable to a listing. The founders would also like to maintain a degree of control over their shareholder register and as a result do not favour a public listing.

We observe that taking investment from an offshore VC does not preclude an IPO from occurring later — there are many precedents for this — and we encourage these types of companies to retain the flexibility to have a listing as a choice for the future.

Small-medium size, low-to-medium growth companies

These companies (revenue, say, $5 million to $20 million) are typically owned by a single individual, a family or otherwise closely held and have grown organically over time, mostly with profits reinvested into the business and some use of
debt financing. These owners will often only consider selling their business in conjunction with a decision to retire or step back from the business. In lower- margin sectors such as manufacturing or industrials, these businesses struggle to raise capital or sell their business for prices they would consider attractive. A trade sale or retention by family interest is common.

Yes, this is the funding gap that is only mentioned in regards to SME here while clearly articulated for early-stage VC investment.

Medium-large size, higher growth-seeking companies

These companies are often owned by a single individual or closely held. This group of companies is generally growing at a healthy pace and profitable or very close to it, and is confident of achieving more growth, often via export or expanding offshore. These companies generally have a board in place. A subset of this type of company appears more favourably disposed to listing having been either positioned for a listing for some time, or at least to have preserved it as an option. They intend to use the capital markets to fund growth.

Large and profitable private companies

These companies are typically owned by families and, in some cases, management and employees also. They tend to be older businesses and, as they have been profitable for some time, they are often aspiration and growth focussed. Their owners are generally not demanding of distributions. They often have low levels of gearing and a single banking relationship. Many do not have a significant requirement for equity capital. A significant portion of these companies are already operating in Australia or considering expansion there. For many of these firms the need for capital and liquidity is
often driven by the time frames of their shareholders. Often, one may wish to sell but others want to continue the growth path, but don’t have an appetite to debt fund the exit of a significant shareholder. Often, these companies will look to trade or financial partners, but they are a substantial opportunity for the public markets.
p.62-63

Direct Capital estimates there are approximately 1,200 private companies in New Zealand with revenues over $30 million. Of these, around 720 have revenues greater than $50 million and are profitable, and around 480 have revenues greater than $100 million and are profitable. There are approximately 70 NZX listed operating companies with revenue greater than $30 million which are profitable.

There are many reasons these companies are not actively considering listing. Some are based on preferences, but some are attitudinal, and some are misconceptions. Some state that they do not want the public profile associated with listing or to be subject to the disclosure requirements of a listed company. Many acknowledged they do not have full awareness or understanding of the options for listing or benefits, as they have not sought advice in this area.

An opportunity for the NZX and the industry generally is to promote the benefits of the capital markets and dispel misconceptions. Capital markets can be flexible with regard to the preferences of vendors, and it seems too many potential issuers rely heavily on anecdotes and selected examples to form opinions

Other views

We also note there are a number of instances of companies that could otherwise list choosing to accept private capital because they have a limited number of suppliers or customers, and believe public disclosure of their financial information would not be in their own commercial interests. They also preferred to avoid the public scrutiny associated with being a listed entity.

Brokers and investor base

We received feedback that listings of companies with likely market capitalisations less than ~$100 million receive little support from traditional brokers and investment banks, who seem less willing to support or sponsor such smaller-scale listings. New Zealand has experienced a significant consolidation in the number of brokers and investment banks capable of acting as lead manager to an issue. Causes of this are the partial or full withdrawal of international investment banks and consolidation of retail firms, generally for economic efficiency in light of increased regulation, and to achieve the benefits of scale. There are about half a dozen broking or banking firms remaining.

For these firms, a small IPO can take as much resource as a larger IPO, but earns less. They can also be less certain with regard to completion, and arguably riskier to sponsor. In short, the opportunity cost of an investment bank undertaking a small IPO can be quite large.

Smaller IPOs require a similar level of work from the buy-side, but clearly cannot contribute as much to investment returns. They may not ‘move the needle’ for the larger investors and there are no economies of scale. Some larger managers choose not to invest in smaller IPOs, citing liquidity reasons.

In addition, a number of New Zealand equity fund managers who previously focussed on smaller-cap stocks have significantly increased their funds under management, to the point where they have needed to move into larger stocks. There are few, if any, pools of capital dedicated to smaller stocks, although we have indications that one or two fund managers are considering becoming more active in this area.

Retail participation by brokers outside those sponsoring an IPO can be problematic too — stock allocations are uncertain, and research may not be available. Offshore stock exchange platforms have been able to provide support for some small market capitalisation New Zealand-based companies. Many of these companies (in their view) have not been well supported by the New Zealand public equity market.

The lack of recent IPOs can be characterised as more of a ‘supply’ issue rather than a demand issue. That is, there are investment dollars available for investment into IPOs, but there is a lack of sizable companies willing to come to market. However, there are several trends that, if continued, would cause constraints on the demand side, even when the supply returns. These include further consolidation of the broking sector and, a lack of institutional capital and people dedicated to smaller companies, as discussed above. Many of the recommendations in this report are aimed at increasing the ability of smaller companies to access the public market.

p.64-65

I think the report has made a very good case as to why small companies should not list. I'm not convinced the recommendations will either happen or have much effect. Hope I'm proven wrong. There are simply better options for raising capital for a mid-market business.

Continue to encourage and support innovation in capital markets

If private markets are to become a greater feature of the capital markets (and companies do not list until they are much bigger), there is a role for alternative markets where owners can trade without it being on a mature registered exchange. We recommend that both the FMA and MBIE encourage innovation in support of capital markets. Recent innovations include the same class offer regime, crowdfunding and peer-to-peer lending.

NZX has experimented with three secondary boards and none has been successful. Suggested reasons for this include that they did not significantly reduce any regulatory burden or attract a critical mass of companies. There was also a lack of research and limited incentive for brokers to become involved. There are very few instances of secondary boards operated by major exchanges becoming successful. However, we note that others have proposed trading platforms, such as Syndex and MyCap Markets, which are further discussed on page 83. We believe that a workable model for issuers and investors may be the concept of limited liquidity windows, with direct participation by investors, while maintaining disclosure standards.
p.69

Am very interested in whether these trading platforms can find liquidity. If so they could be a game-changer.

Alter loss-continuity rules

We recommend altering loss-continuity rules towards a ‘same business’ test. This allows businesses to openly accept equity funding to fund growth without fear of surrendering existing tax losses. We see this as positive for companies generally, and the capital markets, as it will allow vendors to receive economic outcomes from past investment. In particular, some of New Zealand’s early stage companies will benefit. Currently they may lose the tax benefit of losses as their capital structure changes through successive funding rounds.

The current settings discourage investment into such companies where the investors know that otherwise valuable tax losses are likely to be forfeited by subsequent capital raisings. The current settings also discourage the growth of the companies themselves as the founders are deterred from taking on such investment where losses may be forfeited. This may result in poorer growth, employment and economic outcomes for New Zealand.

Yes. Indeed the previous government should have done this to be fair.

A review of tax concessions for savings

We recommend a review of the need for tax concessions for saving in order to boost the pool of investment capital and improve wellbeing in retirement. Current settings tax New Zealanders’ savings more heavily than certain other investments, such as real estate. This uneven tax treatment discourages private saving outside real property.

p.75

Too right. We are a nation of house traders, selling our houses to each other rather than investing in the productive economy.

Recently, we have seen increased innovation and introduction of new products in the New Zealand markets, such as crowdfunding, new participants to the NZX, and collaboration between different sectors within the ecosystem. A common factor of many of these initiatives is that they open existing investment opportunities to a greater range of investors, either by lowering barriers to direct participation or creating indirect access.

We spoke to potential creators of new products to understand what may become available over the medium term. However, for competitive reasons, each requested their plans be kept confidential. Based on these conversations, we see encouraging signs that new products are being developed to add depth to our capital markets and will be launched in the near term. These products will not necessarily need to be listed, nor even themselves invest in listed securities. We think it is important that regulators remain open to innovation in the smaller end of the markets, and in the growing continuum of private markets to public markets.

Collaboration between different sectors

We have seen recent instances of collaboration between different sectors of the market. For example, Simplicity committed to invest a small proportion of funds in early stage companies via Icehouse Ventures. The various angel organisations active in New Zealand have grown rapidly since inception, and some of these networks have developed a range of their own funds and have ambitions for further growth. We are confident there will be more innovation from locally based fund managers and brokers, matching suppliers of capital (including individual investors) with investment in companies, particularly in the non- listed space — another means of accessing private markets. As discussed on page 54, the Government’s market development commitment of $300 million to the VC sector via matched funding should open further opportunities
for more investors to access this part of the market.

p.80-81

Combining the alternative assets skills of one organisation and the retail fund skills of another makes good sense to me. Seems like there could be some real innovation in this space.

Crowdfunding and peer-to-peer lending

Crowdfunding is a new and increasingly popular addition to New Zealand’s funding landscape. It is particularly attractive for entrepreneurs who seek flexibility in who they offer the investment opportunity to, and for companies that are not large enough for IPOs. The FMCA allows the promotion of crowdfunding investment opportunities to the general public under a reduced disclosure regime, which results in a lower cost and burden to the business. Crowdfunding also gives businesses additional marketing exposure.

When the FMA legalised crowdfunding in New Zealand in 2014, platforms began providing equity and crowdfunding opportunities for entrepreneurs and small businesses. Additionally, we have seen the emergence of dual offers via a crowdfunding platform with a simultaneous offer to exempt investors. Whether crowdfunding is the first step in a series of larger raises by different means depends almost solely on the performance of the underlying business.

Peer-to-peer lending has developed as an alternative to bank and other forms of credit, and in New Zealand continues to grow, although it remains a niche market in terms of size.

New marketplaces and exchanges

MyCap Markets is investigating setting up an open regulated marketplace for trading and investing in small-
to medium-sized Kiwi businesses. It proposes to allow issues to have periodic auctions rather than continuous trading, but with issuers required to disclose all material information ahead of each auction event. It is designed for businesses and projects that are too small to list on a public market. This provides another option for SMEs seeking capital where traditional methods may not be possible.

Syndex is an online exchange for investing in proportionally owned assets. It provides a marketplace to invest in alternative assets such as commercial property, farmland, horticulture, units in property syndicates or shares in private company assets which are held in proportional ownership structures. Investment opportunities are provided for both wholesale and retail investors. As Syndex provides the opportunity to invest in assets other than shares, it is another means of injecting capital into the New Zealand market.

p.83

I'm very interested in these private exchanges, as mentioned above if they can get liquidity then they could be a great half-way house to publick listing.

All up a great report.