Chris Lee & Partners Ltd

Taking Stock - 29 October 2026

It was during the mid-period of Key's smile-and-wave tenure in government that it became clear to me that he had no vision, no visible analytical skills, and no strategic plan to exploit what should have been a golden era for NZ.

Wealth had grown during that era, with the sharemarket delivering average annual gains of more than 10% for nearly a decade, while wage increases largely offset inflation. Bar house price rises, national wealth did not accrue. Productivity was weak. Export growth was weak.  Social services were inadequate.

What was disturbingly obvious was that with very few exceptions (English, Joyce are examples), New Zealand had few politicians with a plan to improve life for those who needed help, and no plan to turbocharge those parts of the economy where we had comparative advantage.

We then had a change of government with Ardern and Robertson, pork barrelling to achieve their undisclosed plan, being to lock up the political support of Maori, Pasifika, the unions, the public service, the media and the growing LGBTQ fraternity.

The public journalism fund, co-governance, DEI in public service leadership, and other soft policy sold by a telegenic, empathetic, media-trained leader might have worked had the plan been disclosed and widely debated. The country rejected the opaque plan.

Bear with me, for it was in the lead-up to these examples of political chicanery that it became obvious New Zealand had had no leadership, no plan, for decades.

Every real leader facing widespread challenges begins by analysing the problems, the opportunities, and by devising strategies, then the tactics to implement a plan, after intense disclosure and debate, displaying the plan to all relevant parties.

Faux leaders just smile and wave or covertly seek to lock in ideology.

So it was that during Key's reign I wrote to the politicians, inviting them to implement a strategic planning operation, beginning with a strategic plan based on SWOT analysis.

Such a plan begins with what every real leader would know is the SWOT exercise. SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. Real leaders publish such analysis and are judged by the breadth of their understanding and the prioritising of their strategies.

I took time off to offer the bones of a SWOT exercise and published it, in Taking Stock, evoking some interesting responses.

My goal was to draw out any politicians with the potential to be a real leader.

None appeared.

A summary of a SWOT analysis might have been:

Strengths - Arable land; ample water; low band of temperatures; universal language; high supply of renewable energy (hydro); huge coastline; low level of corruption; distance from global territorial wars; reasonable standards in healthcare and education; a trusted judicial system; high hygiene standards in food production; world leading farmers; ample access to building materials; reliable airline; tourism potential; and strong banking sector.

Weaknesses - Earthquake-prone; erratic ocean weather; continuing link to failed British institutions; shortage of capital; absence of transport fuel; difficult topography; absurd system of electing stable government; large percentage of population permanently damaged by drug dependency; left-leaning education system with little focus on vocation preparation, high percentage levels of complacency; low standards in public media; national tendency to revert to the lowest common denominator; growing level of racial dysfunction; illogical superannuation scheme; low productivity.

Opportunities - Exploit excess of food production; specialise in start-up technology solutions; develop electrification to replace transport fuel dependency; import substitution; refocus of education on technology, science, maths, engineering, medical training, trades; development of savings; exploit renewable energy to attract offshore high users of electricity; adopt AI; implement gene therapy and use analytics and AI to reduce long-term health costs.

Threats - Gross over-regulation (i.e. consenting process for development); illogical tax system (no tax on realised capital gains); low level of business experience in parliament; absence of leadership; low attendance at colleges; deteriorating infrastructure; collapsing birth rate; fiscal imbalances; growing sovereign debt levels; unaffordable housing; poor social housing; insufficient tradesmen; shortage of health professionals; fuel prices; falling currency as a result of constant fiscal deficits and excessive household and Crown debt, leading to inflation and high interest rates; our version of MMP, generating perpetual short-termism; adapting to weather changes.

Obviously these one-liners are not pretending to be comprehensive. Strategic plans are long and detailed.

I raise the subject because I believe it points to a solution as the country faces an election based on a deeply flawed voting system, and a bleak standard of candidates, about whom little is disclosed, barely a handful of them having made significant contributions during their careers, many never having any real management experience, let alone leadership skills.

Here is my suggested step.

Instead of boring gotcha debates that uncover little about the candidate’s suitability for leadership roles, let us instruct our Crown-owned media to set up a leadership suitability evening on live television to give voters a real insight.

Drag in the aspiring leaders to individual rooms.

Give them 30 minutes to prepare a SWOT analysis of New Zealand as they understand it, and require them to display strategies that exploit strengths, overcome weaknesses, take account of opportunities and address threats.

Let them display tactics that will develop the strategy.

Let them display a budget for money and time.

Show us they are capable of analytical thinking and have sensible priorities.

Let us have at least superficial evidence on which to base their case to lead or to sit in any cabinet.

My guess is that their priorities and their headline understanding of the issues would provide the floating voter with some substance on which to choose the best of those on offer.

I wrote my strategic plan in Taking Stock 15 or so years ago, hoping that his advisors might put some substance into Key. My plan failed.

I wrote often to the next government. It is hard to find meat in butterflies.

Might there still be time for electorates to demand some sort of a plan from those who face the ballot this time, so we can judge any evidence of substance?

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The business section of the NZ Herald, stylised as BusinessDesk, provides evidence that it is possible to improve media standards.

Business Desk derived from the NZ Herald's purchase of a business reporting website founded by Patrick Smellie and a colleague in 2008.

With the financial and moral support of the acclaimed sharebroker turned fund manager (the late) Brian Gaynor, Smellie started out with a business content newswire which grew into a subscription business service.

Gradually he refreshed the staff until he had assembled a group of journalists, some of whom were clearly interested in real business journalism, and were motivated to learn

Smellie had come through an unusual route to ownership of this service, having been a competent journalist before gaining real business experience with a leading public company, where he mixed with decision-makers.

This experience made him unusual, not quite unique, but when included with time in Parliament, equipped him for a leadership role in journalism.

Patrick's father was a High Court Judge, of good intellect, best known for his courageous decision to compel the Crown to fully reimburse debenture investors in Allan Hawkins' cynically constructed, ultimately bankrupt, Equiticorp empire.

Equiticorp collapsed after a deal it did with the Crown in 1987, buying NZ Steel with a mechanism that was clearly illegal, and led to Treasury being seen to have been so keen to sell NZ Steel that it accepted a sales process it knew was illegal.

Justice Smellie many years later instructed the Crown to repay some $300 million (plus), the cash offsetting the loss that had ultimately fallen on Equiticorp's debenture investors.

Patrick Smellie, with an unmatched (in NZ) journalist/ commercial /political background, formed his business subscription service and sold it to the NZ Herald, whose business section had lacked any credibility for many years.

The NZ Herald stylised the service as BusinessDesk and has succeeded in persuading enough people to subscribe for the daily business news to restore the NZ Herald's credibility.

It now sits with the National Business Review as our two adult business news providers, both well below the standard available in Australia, but both of value to NZ business.

Recently BusinessDesk invited several business people to pen an article under the heading One Big Idea.

It failed to persuade most of our top tier of leaders to contribute, but the concept was innovative and did produce some readable responses, one of the best from the woman who runs the highly regarded BECA Organisation.

Her "big idea" was to reduce our dependency on transport fuels by incentivising the use of electric vehicles.

Our biggest imports in order, were a year ago:

1. Mechanical machinery and equipment NZ$12 billion

2. Fossil fuels $10 billion

3. Vehicles, parts and accessories $9 billion

4. Electrical equipment (smartphones etc) $8 billion

5. Optical and medical equipment $3 billion

6. Plastics $2.5 billion

7. Pharmaceuticals $2.3 billion

Given the recent fuel cost increases (60%) I expect fossil fuels are now our biggest single import.

Her idea is far from unique but does raise the question of by how much NZ would benefit by increasing the use of electrification in our transport sector.

The NZ Herald's BusinessDesk had a good idea when it approached some business people, all of whom would be familiar with SWOT analysis, to display their thoughts to the public.

We will never succeed in luring our best business leaders into politics. As Chris Luxon will have observed, our country's maturity and willingness to adopt sane long-term strategies is still in its teenage stage, so the contributions of our most experienced and successful leaders will be spartan. They will prefer to hand pick their colleagues, as I would.

But the NZ Herald and BusinessDesk might help us advance towards a more adult acceptance of the need for long-term strategy if it can persuade our real business giants to offer their thinking and their solutions to the public.

Couple those offerings to the best of our scientists, engineers, industrialists, medical people, farmers and any outstanding educationalists, and extract from them regular think pieces under the banner "In Search of Excellence" and watch the trajectory of our country's progress.

Just saying!

New Issues

Contact Energy is expected to issue a new subordinated capital bond on 2 November. We expect the bond to have a term of around 6 years, with a possible interest rate of around 5.75% per annum. Clients will not be charged brokerage for this issue as Contact is paying the transaction costs.

Auckland Airport is also expected to issue a 5-year senior bond issue next week, with a possible interest rate of around 5.00% per annum. Auckland Airport will not be paying the transaction costs for this offer, so clients will be charged brokerage.

Investors who are interested in these potential bonds are welcome to contact us with their CSN and an indication of the amount they may wish to invest.

Travel

Our advisors will be in the following cities next month:

16 November – Wellington – Gavin Parkes

17 November – Christchurch - Chris Lee

18 November (am) – Christchurch – Chris Lee

18 November (pm) – Ashburton – Chris Lee

19 November – Timaru – Chris Lee

Investors who would like an appointment to meet are welcome to contact us.

Chris Lee

Taking Stock 22 October 2026

SOME investors believe that the world’s fund managers and pension fund managers have access to superior information and analysis, leading to them being omniscient and prescient.

Believers point to the recovery and growth of great stocks like Microsoft, which was around $20 in the 1990s internet era, and today it is $529. Most fund managers never sold. Rewards have been rich.

Those investors favour active or passive fund managers, believing that financial markets see through short-term change, to the advantage of investors.

Other investors have no such faith, reciting Warren Buffett’s wisecrack that asks why wealthy people would drive into Wall Street in their Cadillac to ask the opinion of youngsters who catch the train to the city. Where is the evidence of wisdom?

Those investors do not cite Microsoft’s success. They recall Cisco, the provider of routers for the internet. In the early 1990s Cisco was priced at less than $1.00. When the internet became the breakthrough event that would change the world, Cisco was seen to be the obvious beneficiary. Its routers would be essential.

Its share price soared in double figures reaching $80.00 on March 27, 2000, about the time the internet fever subsided. Some pension funds quit, some bought. Twenty years later, in 2020, Cisco recovered to $38 and today are $107.

In 20 long years between 2000 and 2020, investors in many pension funds learned to whistle.

The question is over omniscience or prescience. No fund manager or pension fund manager is able to do more than observe fashions and choose which to ignore. Short-term results are key to their success, and their bonuses.

Right now, most pension fund managers and fund managers believe that the world is entering a new era of perpetual growth in wealth, thanks to the wonders of Artificial Intelligence. Nothing else seems to matter.

Witness the response to such events as war in Europe, war in the Middle East, destruction of lives, infrastructure and relationships, and maybe democracy, and angst evident in many countries.

One can almost see the headlines: Russia invades Poland, oil fields set on fire, looting in Paris, White House attacked again - and stock prices soar. The pension fund managers, now with a strong grip on other people's money, can see the havoc, see the potential of AI, and make their judgment.

Are the two camps - the believers in omniscience, and the disbelievers - permanently incompatible?

It is hard not to dwell on Cisco, A great idea was well executed, the share price soared, slumped and 20 years later recovered to its previous high. Twenty years. Time is money. Time runs out for some of us!

If we believe in the most successful fund managers/forecasters, we might focus on Ray Dalio, the founder of giant Bridgewater, or John Mauldin, whose weekly economic commentary and forecasts are read by millions, including most of the literate fund managers, though they all will have many sources from which they form their convictions.

Mauldin and Dalio observe artificial intelligence fever with dispassion.

Dalio notes the circularity of private credit funding private equity to invest in the AI-focused shares, while private credit also lends tens of billions to companies wanting to build AI infrastructure.

He uses the word "bubble". He will surely be relieved that the Australian Firmus idea, absurdly valued, was scotched, and may have noticed that this week one of Australia’s largest data centre builders signalled distress, its share price falling 40% in one day.

Mauldin records that AI will undo the logic of index funding, noting that a mainstream index today will be exposed to at least one third, to the various fortunes of a few AI aspirants.

He notes how non-balance sheet liabilities are lurking behind balance sheets of the AI principal players. He warns of the "triangle" - the circularity of Open AI, SoftBank and Oracle incestuous funding making each of them dependent on the others' ability to convert potential into nett profit.

Oracle, as an example, has $288 billion of off balance sheet liabilities, linked to commitments to rent unbuilt data centres. Accounting rules do not require this be shown as a balance sheet liability.

The world knows that another huge player, CoreWeave, has issued $6 billion of bonds at 9% plus this year. They are now priced by the market around 80c in the dollar. It has given notice to its clients that it plans to sell another giant bond issue. CoreWeave is talking to pension funds. Will they buy again?

Insuring CoreWeave bonds is now costly. The price is signalling default risk.

Mauldin's point, that the pension fund managers seem to ignore, is that there are cracks under the bonnet that imply the AI hype is well short of reality, success certain to be patchy. We may deduce that AI may not be hydraulicking the global markets forever.

Mauldin talks about the extreme level of AI enthusiasm as being an existential threat to the concept of index investing. His logic is that when an index is dominated by one concept (AI) the index is not spreading risk across a range of sectors, is not mitigating risk, but is instead dragging non-risk investors into concentrated risk.

Our chairman James Lee made this very point at our seminars months ago.

Mauldin, very much an active fund manager, sees this concentration as dangerous.

During our recent seminars James presented his thoughts. His role as CEO of a Canadian-listed global company brings him into contact with a wide range of American capital market players. He noted that recent research was published highlighting that the gains made by a minority of the great Russell 3000 index offset the losses of a very large percentage of others in the Russell 3000, presenting a false picture of US sharemarket health.

The theory of a shop owner stocking sixpence worth of every lolly will not be much use to those who know that only Jaffas and Spearmints are selling well. Does the owner require prescience to work that out?

The potential and the risks of AI euphoria are driving investment. The immediate visibility of the effect of the excitement can be seen by the impact of foreign investment pouring into US stocks.

The gap between surplus saving nations (China, Japan) and deficit economies (the US the prime example) is at its highest level since the pre-Global Financial Crisis (circa 2007), and near the highest for 150 years. Imbalances often lead to wild policy (Trump’s tariffs?)

In simple terms, China creates trade surpluses that one way or another link to America's debt of US$40 trillion.

Chip makers Taiwan and South Korea provide examples. South Korea recorded a current account surplus in 2023 of $33 billion. Today the surplus is $450 billion, thanks to chip makers, sales driven by AI. Observe its sharemarket volatility, best described as “wild”.

South Korea in 2023 spent $17 billion on US equities. In the year to July 2026 it bought US$69 billion of US stocks.

Governments have been buying fewer US treasuries while corporate and personal savings prefer corporate bonds and US stocks, feeding the AI boom.

The money for US treasuries also diminished in 2007–08. Bloomberg calculates that foreign-held US AI investment has risen in very recent years by US$5 trillion. Small wonder AI stocks have seen their share prices rise.

Research centres in Europe forecast that by 2032 investment in AI infrastructure will be US$9 trillion, far far exceeding, as a percentage of GDP, the railroad expenditure boom which transformed the world in the 19th century.

In summary, Asian trade surpluses and savings are feeding into the share prices of those in the AI circle. The giant bank HSBC notes that a stumble in AI investment - bond failures, share price reversals - would be "extremely painful" for the US (pension funds), the US dollar, for Asia and the world.

Bloomberg notes the Magnificent Seven Index (the AI hyperscalers) has risen in three years by 380%. This surge in pension fund paper value has excited Americans, tending to irrational short-term spending.

Consumer research has identified that Americans are spending far more than their income increases (by about 10%) because of the unrealised gains of their pension displayed in their pension fund valuations. This consumer spending splurge is driving US growth. It is also driving bank lending. If you spend money you do not have, you do it by borrowing, credit cards, bank loans, etc.

Credit card debt grows and is securitised. Pension funds buy the securitised debt; leverage on leverage.

What conclusions may one draw from the above?

If fund managers are indeed omniscient, better still prescient, AI will produce lasting new wealth that greatly enhances pension funds and will feed into a new surge of wealth, especially in Asia (New Zealand’s largest market).

If AI leads to a level of euphoria not matched by successfully monetising the technology, or not spread widely amongst the aspirational companies borrowing trillions to gain a seat at the AI table, then a wide range of forecasters and researchers expect trouble, at a level at the very least of the global financial crisis in 2008.

Currently the global shortage of data centres implies that AI will run into a significant obstacle.

How much faith should we have in those who control our savings?

(I note that our best fund manager, Milford, has made sensible long-term decisions. It is an exception.)

Are the destruction of Middle Eastern and East European infrastructure, the devastation of trading co-operation, and the dramatic changes in weather patterns, coupled with the gigantic increase of household, corporate and sovereign debt, a portent of progress, justifying all-time record-high equity market values? Is France an example of a country that has lived on debt for decades, and is reaping rewards or facing civil war?

May I just repeat the summary our chairman (James Lee) provided at our seminar:

If investors could achieve six to seven per cent returns over the next year or two, then they (and I suggest, most investors) should be comfortable with the return for the risk involved.

Pension fund savers should be vocal in getting their views to their managers, especially as the savers close in on the date when the funds (like KiwiSaver) are to be withdrawn to be used in retirement.

The AI frenzy scares many sages. Return and risk are linked.

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IF the blind faith in fund managers mystifies me, so too does the attitude towards lending risk.

In an era when investors can buy NZ, Australian, UK and US sovereign-guaranteed debt at rates greater than 5%, New Zealand seems to be reducing credit margins, to enable corporates and banks to raise money at similar levels to sovereign debt.

Here are some facts:

1) Banks and private credit fund managers globally are observing rising debt default levels.

2) Buying insurance against credit default is getting costlier.

3) The dozens of US credit raters (some demonstrably "flexible") are variable, in value to investors. Some seem to be replicas of those who in 2008 were rating liar loans as a AAA investment.

4) Sovereign debt levels are rising, as is the differential being paid by poor performing countries (witness French bonds vs German bonds). France’s 10-year bond rate hit 5% yesterday, higher than Greece’s rate by some margin.

5) Private credit, opaque and lightly regulated, now has lent $2 trillion to aspirational American companies, much of that lending subordinated behind secured, sober bank lending.

6) Many countries (US, UK, Japan, China, France, Italy) have allowed sovereign debt, measured against GDP, to reach highest-ever levels, or close to it.

Those of my age group, highly focused on achieving sustainable passive income, may feel comforted that in NZ 5-6% rates seem likely to be available from organisations with relatively low levels of indebtedness.

I expect a wide range of bond issues to emerge in NZ. For those who have no fear of double-digit inflation (which would be horribly destructive) they can observe the yields available on Auckland City Council 24-year bonds. Six per cent plus - somewhat higher returns than build-to-rent apartments, and with somewhat less capital risk!

Footnote: Falling global equity prices are not a harbinger of planet extinction, and not a hint to open the windows in Wall Street. They are a reminder of the need to measure personal objectives against returns for risk, so that decisions are fit for purpose for the owner of the money. Personal objectives should take account of age and needs.

Chris Lee

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New Issues

Kiwi Property Group is offering a 7-year, fixed rate, senior, secured green bond, with a minimum interest rate of 5.55%. Firm bids are due by 11am tomorrow, Friday 23 October. 

Contact Energy is expected to issue a new subordinated capital bond on 2 November. The bonds have an initial term of around 5.5 years, with a possible interest rate of close to 6.00% per annum.

Investors who are interested in either of these potential bonds are welcome to contact us with their CSN and an indication of the amount they may wish to invest.

Travel

Our advisors will be in the following cities next month:

17 November – Christchurch - Chris Lee

18 November (am) – Christchurch – Chris Lee

18 November (pm) – Ashburton – Chris Lee

19 November – Timaru – Chris Lee

Investors who would like an appointment to see us are welcome to contact us.

Taking Stock 15 October 2026

Any regular reader of Taking Stock may recall my strident condemnation of the people who devised the Provincia Property fund, doomed to investor disappointment because of its structure.

The fund paid its manager generously but also paid on growth that was funded by debt, as well as rewarding the management company for finding acquisitions and also for arranging debt facilities. Size, not quality, could be rewarded. The combined fees were absurdly high.

It was as poor a structure as RJI was when it was listed in 1982, grossly over-rewarding the founder, with very little ability to fire the managers or direct them to prioritise the interests of the investors. Provincia and Jones were effectively judge and jury, with minimal investor input, and very poor governance.

Various stranded Provincia investors contacted me, some of whom fought valiantly and seem to have gained the upper hand. I admire their tenacity.

The good news is that change may be afoot.

Craig Priscott, who has successfully intervened with other dreadful unlisted property syndicates like Superstore, has become a significant shareholder and has engineered a change in chairman. Clearly, he has financial grunt and the energy to fight.

Contemporaneously, a company valuer, Northington, has analysed Provincia and found that over a decade or so the management fees exceeded investor returns!

Tellingly, one of the founders, Carl Burling, is alleged to have sold out of his units at a 40% discount to par while the fund continues to claim its assets are worth more than par, and that its prospects are bright. There is virtually no liquidity in the stock, meaning investors rarely can escape. Dividends have been nil or pathetically low.

So, it is great news for investors that a new chairman and a well-heeled investor may either arrange to replace the turgid management, or initiate a staged liquidation, bringing an end to an awfully structured unlisted property syndicate.

I compare that with The Wellington Company's three syndicates that 11 years ago bought commercial properties and adapted them to student accommodation during the education boom in Wellington, when foreign students scrambled to get into Victoria University.

Of course, many such students left NZ after the Kaikoura 2016 earthquake. Some have not enjoyed the focus on left wing ideology of the university, showcased by people like Rashbrooke, who in that time became a Stuff commentator preaching far-left ideas.

When the students left, the property concept became flawed. Valuations slumped. The dividend pool was threatened.

The owner of The Wellington Company, Ian Cassels, at one stage sacrificed his management fees to honour the dividend promises.

In recent months he has orchestrated sales or repurchases by his company. This will enable all investors to recover their capital, two with a marginal gain, and has maintained credible returns for investors during the very difficult recent years.

In effect he has taken responsibility for transforming the properties to suit the market that exists today.

I give him great credit for honouring his investors.

The three syndicates were sensibly structured, with good rules, and transparency, but it certainly helped that the principal displayed principles.

Provincia, in my view, should be managed by those with the mindset that the investors are due an outcome very different from what has been assumed, in recent years. My current view is that unlisted property syndicates are useful for vendors but awful for investors. Those advertising gross returns of 7.25% are grossly under-rewarding risk. Run, rabbit, run.

Many, other than me, have for years sought new legislation to prevent fund managers being locked into their role, removable only by the most difficult processes, making the contract worth millions, often tens of millions. (Jones sold his contract for $75 million, thirty years ago, or more.)

The latest protest comes from the new chairwoman of the three Fisher listed share trusts, Kingfish, Barramundi, and Marlin.

Fiona Oliver was appointed to her new role in July, after the former UBS executive, Andy Coupe, retired from chairing the poor structures.

Oliver was confronted by statistics showing years of quite dreadful performance by the three Fisher funds, in contrast to market indexes, resulting in share price devastation, Kingfish having fallen from $2.20 to $1.10 in four years, while the sharemarket index has grown.

Oliver would also have noticed that Fisher Funds have a high management fee structure and a quite absurd bonus fee structure, claiming out-performance bonus fees based not on equity indexes but on the cash rate. The fund is an equity fund, not a cash fund. How did financial advisers allow this structure to be implemented?

I once asked Fishers why they continued with this anomaly. The answer I received was that at annual meetings the issue never arose. (Partly this would be because the Kingfish fund would be bought only by retail investors, never inquisitive fund managers).

All of these defects explained why many, me included, would rate the Fisher Fund group as more credible than the now defunct fund managers Vestar, Money Managers, Broadbase and Reeves Moses, but only by a short head, not by a neck, let alone the length of the strait.

Its track record with its three listed trusts, Kingfish, Barramundi and Marlin is abysmal. There have been times when its heavy buying of Ryman and Michael Hill has had the air of desperation, not logic. Neither company features today in its top twenty, but undoubtedly both contributed to Kingfish's awful results.

Oliver must see all of this.

She is commissioning a review to consider sacking Fisher Funds and finding another fund manager. I politely suggest that Milford would be warmly regarded by most.

Carmel Fisher herself, the saleswoman who founded Fishers, has retired having quit with a nine-figure lump sum, an extreme reward for her energy, media skills, ambition and brand selling dedication.

Oliver is to be applauded for her initiative.

Will the day come when at regular prescribed times, investors get to vote on changing the fund manager?

The Provincia investors would welcome such a change.

So would I. We should not need regulators to legislate.

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When in the decades from 1990 to 2010 several NZ trust companies were trawling for retail investors, looking to manage their estates and trusts, the sector was barely inspected by anyone, least of all the media. Nobody seemed to care, not even the regulators.

The trust companies serviced investors who were not visible, either poorly advised when they enquired about the service, or unwilling to make enquiries, guided only by the Yellow Pages or newspaper and television advertisements, protected by nobody.

What brought the trust companies into the headlines around 2005 was their singularly incompetent work when they chased fees by offering to represent those who had invested in mortgage trusts or finance companies.

Perpetual, NZ Guardian Trust, Trustees Executors and Covenant were all so incompetent and negligent that the trust sector was naturally scorned for their obvious incompetence. (The Public Trust wisely sidestepped the non-bank sector.)

Few will forget how often blind eyes were paid to examine useless covenants in poorly structured trust deeds, expected to apply the handbrake on non-bank deposit takers, when lending focussed on margins, rather than loan recovery, with no respect for rules.

NZ Guardian "supervised" Hanover's rotten group. Covenant looked after Dominion, Bridgecorp and others. Trustees Executors was negligent in managing South Canterbury Finance, but Perpetual was the worst, pretending to be the guard dogs for those who invested in canines like Lombard.

The 2008 second-tier money-lending collapse was well traversed in my book The Billion Dollar Bonfire, which traced the lending nonsense that seemed to scuttle off to holes in the floorboards whenever the trustees called in for a cup of tea and to deliver their invoices.

I guess the good news is the quite appalling abandonment of the trust companies' sense of responsibility to investors, led eventually to inspection of trust company behaviour in the area where they collected their richest gravy, managed funds, family trusts and estates.

Typically, a fund manager would appoint a trust company to attest to the manager's abiding with its deed on such funds as bond funds, or cash funds. The trust company confirmed compliance with the deed.

As no fund manager of any value would benefit by cheating on such funds, the trustee fee, of say 0.1% on a $100m fund would be $100,000, requiring someone with the skill level of a primate, to tick the boxes and collect the fee. This was a task that took hours a year, not weeks. As Darwin had suggested, primates and humans can be closely aligned.

It was money, not so much for jam, but for an old recipe describing how to make jam. Value? Coins, not bank notes.

But the real gravy was, and is, in managing estates and family trusts. The charges are revolting and the skill level confirms that Darwin was right.

Incredibly, the unadvised, or poorly advised public allowed trust companies to set their fees not on the value or time requirements of their role, but as a percentage of the value of the estate or trust. Do I hear 1%? No, 2%? No, 2% plus various ancillary fees such as "admin fees".

People with no or little value to add were paid like valuable fund managers. They were rarely, if ever, accountable for the outcomes. Readers can develop their own thoughts on the value added, compared to the fees charged.

Because the fees were collected in advance, and set per annum at a fixed rate, there was (and is) no incentive to clean up estates efficiently, and because the fees applying to managing a family trust are collected annually, there often was no alignment with the interests of the family trust beneficiaries (to wind up the structure and pay the beneficiaries).

The trust company sector was, and is, divorced from the desired marriage between settlor wishes and beneficiary entitlements. Settlors need to be precise in documenting their wishes if the trustee fee grab is to be minimised. The current practices are offensive, in my opinion.

I recall helping a wheelchair bound beneficiary sack the trustee who had persuaded a senile mother in her 90s to sign up a document giving the trust company, Perpetual, tens of years of annual fees. (The beneficiary won only when the threat of a media campaign scared the company). Such a long-term income stream comes from a "testamentary" trust. Never ever!

Well all this may seem like history, but it is relevant today.

In recent days I have fielded calls from furious beneficiaries encountering deliberate, inexcusable delays, and in one case denying beneficiaries the right to seek a transfer of assets equally to the beneficiaries, rather than the selling of the assets (with all the vendor fees) and distributing cash.

My advice has always been never to use a trust company without first discussing the alternatives with a lawyer. Be specific about what the wind-up should involve, or what grants are to be made. Never be advised by the trust company.

I have long advocated that most trusts and estates can efficiently and at low cost be managed or executed by family & friends, perhaps with access to paid legal or accounting advice when there was uncertainty about legal processes.

In general, this advocacy has succeeded. Far fewer of those I meet sign up with a Trust Company if they have any credible alternatives.

Simple, honest, competent lawyers are generally immeasurably better, and cheaper, than trust companies. 

Caring, alert, competent family and friends are an even better choice, nearly always producing better outcomes, more cheaply and quickly.

Trust companies themselves surely know they are in a sunset industry. Artificial Intelligence can, and will, be the catalyst that should turn dusk into darkness, the sooner, the better.

Gaining advice on how to arrange management of a trust or an estate is not financial advice and therefore should be available from any seasoned financial adviser.

Such an adviser surely would have witnessed many times the trust company fees that far, far exceed value-add.

Do we need court law to put an end to ridiculous fees?

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One client would argue stridently that not all law firms will add value when preparing wills or administering estates.

She recently petitioned Parliament to consider new law requiring much more transparency, when lawyers prepare a will and arrange to administer the estate.

She had encountered greed, inefficiency and intransigence from a law firm. She did not have the power to expel the law firm and move to a more appropriate source of help, though she was a principal beneficiary.

Parliament has rejected her petition.

This may look like a parliamentary group of people protecting what others may see as "the club".

Administering (executing) a will is generally done quickly and well by law firms, with transparency available throughout the process.

When there are exceptions the Law Society should be judgemental and come down heavily on greedy or poor performers. Such operators do not deserve to be protected. Greed should be a justification for exclusion from “the club”.

The worst performers draft the will, appoint themselves as executor, and do not explain adequately their fees and their processes. They then help themselves for as long as they can drag out the process.

It is for that reason that I prefer all draft wills to be independently inspected before any agreements are signed.

A lawyer's certificate should never be a free ticket for any passing gravy train.

Who remembers the days when conveyancing charges were a standard 2.5% of the value of the property?

In the 1980s a $100,000 house scored twice the revenue of a $50,000 house despite there being no difference in time, effort or expertise needed, no incidental costs, and virtually no liability for the lawyer.

To repeat, a lawyer's university certificate, just like an appointment as a trustee, should never be a free ticket to a passing gravy train.

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New Issues

Contact Energy is expected to issue a new subordinated capital bond on 2 November. We expect the bond to have a term of around 6 years, with a possible interest rate of around 5.75% - 6.00% per annum.

Kiwi Property Group has announced it is considering an offer of 7-year, fixed rate, senior, secured green bonds. We expect it will offer an interest rate of at least 5.55% per annum. The offer is expected to open on Tuesday, 20 October.

Investors who are interested in either of these potential bonds are welcome to contact us with their CSN and an indication of the amount they may wish to invest. We will then contact them once further details are available.

_ _ _ _ _ _ _ _ _ _

Travel

Our advisors have an extensive travel schedule coming up over the next quarter, including the following dates:

21 October – Auckland (Albany) – Edward Lee (FULL)

22 October – Auckland (Ellerslie) – Edward Lee

29 October – Christchurch – Johnny Lee (FULL)

17 November – Christchurch - Chris Lee

18 November (am) – Christchurch – Chris Lee

18 November (pm) – Ashburton – Chris Lee

19 November – Timaru – Chris Lee

Chris Lee

Taking Stock 8 October 2026

James Lee writes:

Where Have All the Leaders Gone?

Donald Trump recently said: “The only control or guardrails that AI needs is a STRONG AND SMART (High IQ!) PRESIDENT.”

Um, yes.

But it did get me thinking about leadership and, more specifically, where all the leaders have gone.

As I think about who I would vote for at the next election, I find myself surprisingly uninterested in most of the individual policies being announced. I want someone to tell me where we are going.

What does New Zealand look like in 20 years? What are we going to be great at? How are we going to create better jobs, higher wages and more wealth, and what difficult decisions do we need to make today to get there?

Instead, politics increasingly seems to be about finding something people are angry about and promising to fix it.

Maybe that is what polling tells politicians to do. But it isn’t leadership.

And I wonder if the same thing is happening in business.

Leadership matters

I have had the privilege during my time in markets of meeting most of New Zealand’s leading CEOs and quite a few internationally.

The genuinely good ones are surprisingly easy to recognise. Marko Bogoievski, Scott Pritchard, Cecilia Robinson and many others I could name are all very different people, with different personalities, industries and management styles. But the good leaders I have met tend to have some things in common. They have a clear idea of where they are going. They speak frankly. They act fairly. They surround themselves with capable people and they make decisions.

Importantly, they don’t get everything right. Nobody does. I would wager every successful leader I have ever met could go back in time and change something they did. I certainly could.

Perhaps that is the distinction. A good leader gets something wrong, learns, adapts and tries to make the next decision better.

A poor one blames somebody else, learns nothing and then occasionally explains why, despite everything apparently being someone else’s fault, they deserve to be paid more.

Funny old world.

Research involving 1,200 Australian and New Zealand organisations found leadership, people management and customer focus were among the strongest predictors of operational performance.

Leadership isn’t simply a nice thing to have. It has economic value.

I have thought this for a while

Back in 2022, I criticised DGL chief executive Simon Henry after his comments about Nadia Lim. I thought his comments were unacceptable. But my concern as an investor wasn’t simply whether they were offensive. I thought they told you something about judgement, leadership and potentially culture. I questioned whether that made the stock effectively uninvestable.

I wasn’t alone. The New Zealand Shareholders’ Association publicly criticised the comments and Kiwi Wealth went further and put DGL on its exclusion list.

If you don’t trust the judgement of the people running a company, at some point you have to ask why you would trust them with your capital.

Leadership is an investment issue.

Nearly half

Which brings me to one of the most extraordinary investment statistics I have come across recently.

J.P. Morgan looked at companies that have been constituents of the Russell 3000 (an index tracking the largest 3,000 US listed companies) since 1980. Nearly 45% suffered what it defines as a catastrophic loss, losing at least 70% of their peak value and never recovering. Even more interestingly, the top-performing 10% of stocks generated almost all the Russell 3000’s total return.

That is an extraordinary combination. A relatively small group of companies created enormous wealth while nearly half eventually suffered catastrophic destruction of shareholder value. They all had boards, auditors, strategies, budgets and management teams. At some point the market thought they were worth considerably more than they ultimately proved to be.

Some were destroyed by technology, competition, debt or bad capital allocation. But I suspect many simply continued making perfectly sensible decisions for a world that no longer existed.

That matters because the world is changing faster, not slower.

What are we trying to become?

Which brings me back to New Zealand.

We spend enormous amounts of time debating individual problems. I am more interested in the bigger question.

What are we trying to become?

We have a temperate climate, relative safety, abundant water, renewable electricity, space, functioning institutions and one of the most beautiful countries on earth.

Mostly, we’re even quite nice.

AI requires enormous amounts of electricity. Climate change increases the value of water. Geopolitical instability increases the value of safe, stable jurisdictions. Some of New Zealand’s historical disadvantages may increasingly become advantages.

We have the ingredients. What we need is ambition, a view of where New Zealand could be in 20 years and a willingness to make decisions today that may take 10 years to pay off.

We need a direction. Where is the plan?

Growth compounds

I was in Christchurch recently and was reminded what an extraordinary job they have done rebuilding the city, and how tastefully much of it has been done.

More importantly, Christchurch feels like a city that expects to grow.

Christchurch lost around 4,000 jobs between 2020 and 2021, then added around 18,000 between 2021 and 2023. By 2025 it had around 48,200 businesses employing approximately 238,000 people.

As a proud ex-Wellingtonian - go the Hurricanes - I can tell you my hometown feels like it is on the other side of that growth curve. And that matters because relatively small differences compound.

Build a convention centre, hotel, factory, office or housing development and people build it, operate it and supply it. Visitors arrive. Restaurants gain customers. People move there and need houses.

Investment creates jobs. Jobs create demand. Demand creates confidence and confidence encourages more investment.

Contraction works in reverse. Lose confidence and investment slows. Projects get deferred. Businesses hire fewer workers. People spend less and eventually the cycle begins reinforcing itself.

That is why new projects matter beyond their immediate economics.

Sometimes you don’t wait for growth and then build. You build and create the conditions for growth to follow.

The same is true inside companies.

We tend to think leadership is about the big acquisition, strategy or restructuring. Most of the time it is far less dramatic.

Hire someone slightly better. Fix a customer problem. Remove some waste. Promote someone talented. Make a decision faster. Have a difficult conversation earlier. Stop something that isn’t working and invest more in something that is.

None transforms a business.

Do them hundreds of times and five years later you have a very different company.

The reverse compounds too. Tolerate mediocre performance, add bureaucracy, delay difficult decisions and lose good people. Nothing looks catastrophic on any particular Tuesday. Then one day it does.

Leadership sets the direction. Culture determines what happens every day when the leader isn’t in the room.

Culture isn’t being nice

I learned this relatively early in my career.

I once rang my chairman because I was struggling with what should have been a simple decision. We had been asked to sponsor CatWalk, a charity doing work I thought was genuinely worthwhile.

It was within my delegation, the events would give the firm reasonable exposure, and I could construct a commercial justification.

Yet something didn’t feel right.

My chairman asked me a simple question: “Are you doing it because you think it is the right thing for the firm, or because you think it is the right thing to do?”

I knew immediately.

Supporting CatWalk was the right thing to do. That didn’t necessarily make it the right thing for shareholders to pay for. So, we both made the donation personally instead.

I have remembered that conversation ever since because I think we increasingly confuse good culture with being nice.

They aren’t the same thing.

Being human, empathetic and fair matters enormously. But none of those things excuse poor performance, avoid difficult conversations or justify blatant waste.

Good culture is paying for the staff function but perhaps sending everyone home at eight rather than opening another case of top-shelf wine. It is having honest conversations about performance along the way rather than saying nothing for a year and then isolating somebody when you finally decide you have had enough. It is rewarding extraordinary contribution rather than overpaying someone because their title sounds important.

You can be kind and demanding, generous and disciplined, and treat people like human beings while still expecting them to perform.

Mainfreight is an interesting example. Culture is one of its core pillars, but that sits alongside extraordinary transparency and accountability. Branch results are reported weekly for team members to see and responsibility for quality is reinforced through regular internal audits.

Care and accountability aren’t opposites.

Good cultures understand you need both.

The asset you can’t see

We spend enormous amounts of time valuing companies based on things we can measure. Revenue, EBITDA, margins, market share, cash flow, debt and return on capital all fit nicely into spreadsheets.

Leadership and culture don’t.

Yet if nearly half of the companies in that J.P. Morgan study ultimately suffered a catastrophic decline, surely one of the most important questions an investor can ask is who is making the decisions?

And I deliberately say leadership team rather than CEO.

The heroic CEO is mostly a myth. Great companies are built by groups of people who challenge one another, attract talented people, allocate capital intelligently, admit mistakes and recognise when the world has changed.

The best leaders aren’t necessarily the smartest people in every room. They create an environment where the organisation can learn and adapt.

That is becoming more valuable. AI will make information, analysis, software and expertise cheaper. Judgement won’t necessarily become cheaper.

Knowing when to invest, when to stop, when to change your mind, when to back someone and when to say no remain very human decisions.

An uncomfortable question about passive investing

The J.P. Morgan numbers also raise an interesting question about passive investing.

Passive investing has been extraordinarily successful. It is cheap, diversified and difficult for most active managers to beat consistently.

But if nearly 45% of companies in that historical study suffered catastrophic declines, owning everything inevitably means owning many of tomorrow’s failures as well as its extraordinary winners.

Historically the winners have more than compensated for the losers. But as technological change accelerates, I wonder whether understanding what we own becomes more important rather than less.

AI will create extraordinary winners and destroy business models that today appear perfectly sound.

An index doesn’t know the difference. Eventually the market will.

Which brings me back to leadership. Understanding who is allocating your capital, whether they learn from mistakes and whether they can adapt when the world changes seem increasingly important.

Maybe we should measure it

I have often thought analysts create valuations that do an excellent job of judging a company’s financial model. ESG firms create elaborate scorecards measuring whether companies adhere to policies and frameworks.

Perhaps, as financial advisers, we should develop a scorecard for leadership teams - not a personality contest, but a genuine assessment of whether they have a clear vision, allocate capital well, admit mistakes, retain good people, promote talent, deal with poor performance fairly and early, communicate honestly when things go wrong and link remuneration to genuine value creation.

And perhaps we should ask whether the board actually challenges management or merely admires the quality of the board papers.

Because I am tired of hearing about another toxic bully of a first-time CEO, protected by an incompetent board that appears to believe good papers are what constitutes good governance.

Governance isn’t the paper. Leadership isn’t the presentation. Culture isn’t the staff drinks.

They are what actually happens when the numbers disappoint, when someone disagrees, when a mistake is made, when a talented employee challenges the boss and when nobody outside the room is watching.

Perhaps that is the scorecard that matters.

Nearly 45% of Russell 3000 constituents in J.P. Morgan’s study suffered a catastrophic loss from which they never recovered. Almost all of the index’s wealth creation came from the best-performing 10%.

The difference between those outcomes obviously isn’t leadership alone.

But pretending leadership doesn’t matter because we can’t put it neatly into an Excel model seems increasingly absurd.

Vision matters. Culture matters. Judgement matters. Accountability matters. The accumulation of hundreds of small decisions matters.

And in a world changing this quickly, I suspect all of them are becoming more valuable.

For those of you who get to the end and wonder whether I was talking about you, I probably wasn’t.

But perhaps the fact you wondered if I was is pretty telling.

New Investment Opportunities

Lodestone Energy 

Lodestone Energy has confirmed that the IPO price is $2.25 per share.

Lodestone owns a portfolio of five solar farms across New Zealand, with plans to build another 10 solar farms using the funds raised from this IPO, essentially tripling the size of the business over the next 5-years.

The company is seeking to raise between $75 million and $100 million, with no existing shareholders selling shares as part of the IPO. The new capital will be used to support Lodestone’s continued expansion across New Zealand.

For advised clients, we have prepared a research piece on Lodestone Energy, which is available in the private area of our website. If you would prefer a copy to be emailed to you, please contact us and we would be happy to send it through.

Investors can find the investment statement on our website and if you would like an allocation for these shares, please contact our office with an amount and your CSN and we will send through a contract note.

Contact Energy is expected to issue a new subordinated capital bond in October. We expect the bond to have a term of around 6 years, with a possible interest rate of around 6.00% per annum. 

Investors who are interested in this potential bond are welcome to contact us with their CSN and an indication of the amount they may wish to invest. We will then contact them once the final terms and further details are available.

Travel

Our advisors have an extensive travel schedule coming up over the next quarter, including the following dates:

21 October – Auckland (Albany) – Edward Lee

22 October – Auckland (Ellerslie) – Edward Lee29 October – Christchurch – Johnny Lee (FULL)

Chris Lee and Partners Limited