An extensive financial analysis by ANZ of 31 post-Treaty of Waitangi settlement iwi and hapu shows all recorded a positive profit in the last reported financial year.
The research also shows there are challenges ahead in growing returns for individual tribal members.
Business editor Dene Mackenzie reports.
In unique and challenging circumstances, iwi are demonstrating their ability to balance risk and reward to deliver strong commercial outcomes, ANZ head of Maori relationships David Harrison says.
An analysis by the ANZ of 31 post-Treaty of Waitangi settlement iwi and hapu showed an average return on assets of 8.2%.
By comparison, New Zealand’s largest listed companies had an average return on assets of 7.7% and the five largest listed property trusts an average of 5.6%, for the same period.
However, excluding extraordinary items, iwi and hapu underlying returns halved to 4.3%.
Most top performers had less than 25% of their assets in cash and managed funds, generating average underlying returns of 6.5%. Conversely, a couple of top performers achieved underlying returns of 5.7% through almost exclusively investing in managed funds and keeping commercial overheads to a minimum, Mr Harrison said.
Te Tirohanga Whanui — the annual ANZ Maori Business research series — this year collaborated with 31 iwi and hapu with a combined asset base of $4.6billion.
The report showed clear evidence of a trend whereby iwi were moving from asset holdings in cash and managed funds to more direct and active investment over time.
"For New Zealand businesses looking for ‘transition of ownership’ solutions, a thriving iwi/Maori business sector offered new options with a real point of difference.
"Iwi are looking for opportunities to invest locally and, in a capital-constrained environment where we look overseas for investment, that is a great story for New Zealand."
There was much more collaboration among iwi, not just in sharing information but also to gain the scale needed to target bigger deals, he said.
The report, which delivered a new series of industry averages to help iwi review their investment strategies and planning processes, also highlighted their low debt-to-equity ratios, average bank debt being 14% of total assets, reinforcing the measured approach being taken by most iwi.
"There is still headroom for iwi to use more external funding, within prudent levels, to help accelerate their growth."
Despite the amount of assets held by iwi, the median assets per tribal member amounted to just $9000. Mr Harrison said that highlighted the enormity of the challenge faced to sustainably grow and leverage those assets for all future generations.
Reviewing the rates of return offered by the iwi, Mr Harrison said the highest results were primarily driven by one-off asset sales, revaluations of property, land and carbon credits, and settlement proceeds.
The average operating return on assets was consistent across entities of different sizes, but results varied increasingly as the time from settlement increased.Iwi which were more than six years on from settlement had the highest average operating return on assets at 5.6%.
Of those with the highest operating returns on assets, most held less than 25% of their assets in managed funds and cash. Conversely, a couple had almost fully invested in managed funds and ran lean cost structures.
The lower operating returns on assets were being driven by either large cash holdings or low-returning property and agricultural investments.
Earnings before interest and tax (ebit), including extraordinary items, was on average $753 per tribal member and the median was much less, due to the wide spread of results, he said.
Most iwi indicated they were on the path to consolidation and aiming to become a single commercial entity which managed all its commercial assets, or at least had a single board encompassing both their commercial subsidiary and mandated fisheries asset holding company.
However, 13 still had the majority of their commercial assets held at the parent Post Settlement Governance Entity (PSGE) level, Mr Harrison said.
Three had transferred the majority of assets to their commercial subsidiary yet still retained substantial assets at parent PSGE level.
Eleven had a single consolidated commercial entity or holding company managing all their commercial assets.
Five iwi held commercial assets in more than one commercial subsidiary or holding company but governed those with a common board.T
here was an array of approaches when it came to capitalising on tax advantages, he said.
Two-thirds of parent PSGE entities were Maori authorities. Half of those elected their commercial subsidiaries to also be Maori authority status, while the other half used a mix of a standard company, limited-liability partnerships and "look-through" subsidiaries.
About one-third of PSGEs were charities with charitable subsidiaries.
"Balancing tax efficiency with operational efficiency was a common challenge, with many seeking professional review or advice on their structure.
"A key issue was having Maori authority tax credits trapped and unutilised within the overall group."
Reviewing the capital structure showed iwi balance sheets had low levels of debt with the vast majority of assets funded by equity. On average, liabilities represented only 9% of equity.
Low debt-to-equity ratios were driven by low bank borrowings — a product of cash received through settlements combined with prudently conservative risk appetites, Mr Harrison said.
Eleven participating iwi reported term bank debt. The average bank debt to total assets was 14%, the highest 29% and the lowest 3%.
In comparison, the 30 largest New Zealand-listed companies had 24.5% debt to total assets and the five largest New Zealand-listed property trusts had a 31.6% ratio.
Looking ahead
The task for iwi and hapu of delivering sustainable distributions while continuing to grow their commercial asset base within an acceptable level of risk is a job far easier said than done.
ANZ head of Maori relationships David Harrison says it is easy to sit back from an independent position and compare and contrast the various iwi/hapu approaches. But the enormity of the challenge, and the responsibility going with it, was certainly not lost on him.
In a "Looking Forward" opinion piece in the bank’s Te Tirohanga Whanui report, Mr Harrison said there were five elements of the varied investment approaches he had observed that stood out as sound practice.
• Settle on a simple, effective structure: Consolidate and manage commercial assets in a commercial holding company. Those with the benefit of time had more chance to consolidate their assets and the majority of top performers had assets in a single holding company or group.
• Add detail to the investment strategy: Have a "Statement of Investment Policy Objectives" encompassing all asset types, including non-financial assets. Add detail of longer-term goals and asset allocation, and expected returns by asset class, and consider inflation adjustments. Review regularly.
• Manage distributions: Formalise a distribution policy to manage the expectations of the parent entity and allow for reinvestment of commercial returns to help compound growth for future distributions.
• Collaborate around deal flow and due diligence: As iwi shifted to more active direct investments, the search and assessment of potential opportunities could be onerous. Similar investment objectives, philosophies and time horizons were good foundations for co-investment. Collaboration could help groups find and access deals not possible on an individual basis, and allowed groups to share resources during the due diligence process.
• Leverage assets: Formalise a borrowing policy with consideration for the different types of investment that might need bank funding. Most iwi had capacity for more borrowing and the use of some bank debt could help increase acquisition options, raise returns on equity and accelerate growth.
