New Zealand is a small, sparsely populated, isolated country which, in its modern history, has mostly generated gross domestic product and private wealth by converting carbohydrate (grass and grain) to protein (beef, lamb, wool, and milk) for export to its major trading partners. This mode of commerce continues today on a platform of political stability and social cohesion and has, for many decades, provided a relatively comfortable, egalitarian lifestyle and well-functioning social services for most people in the country.
Primary production is not, however, a highly profitable or scalable form of wealth creation relative to certain other industries such as mining, manufacturing, financial services and technology, which underpin and diversify the economies of other developed countries. It is capital intensive, vulnerable to economic shocks and climatic risk, and profit margins are slim as producers are generally price takers with complex market access and delivery channels.
Because of these limitations New Zealand does not have a long history of private wealth creation, aggregation, and transition between generations. Consequently, many families and their advisors in New Zealand have not dealt with the idiosyncrasies of sophisticated private wealth management like their equivalents in regions such as Europe and the US, where dynasties created from banking, manufacturing, conquest, trade, extraction and infrastructure have existed for decades and even centuries.
However, the demographics of wealth in New Zealand have been changing over the past three decades. This article provides some historical context and commentary on this evolution.
Until the mid-1980s, the New Zealand economy was highly regulated, with strict controls on the import and export of goods, talent, and capital. The apparatus of the state was vast and pervasive, and many utilities and services were provided by public entities rather than private enterprise. During this era, marginal rates of income tax were high (at times up to 66 per cent) and interest on borrowed money was often charged at double digit rates. Opportunities for private wealth creation were limited.
In the mid-1980s, the New Zealand government privatised many state-owned assets and de-regulated the economy. Many privatised businesses had been operated very inefficiently, but they dominated markets because they provided essential goods and services and there was often scant competition. The private interests who acquired these operating assets were often able to make them very profitable by listing them on public markets or selling to offshore interests for many multiples of what they paid for them. This catalysed a new class of private wealth owners, many of whom went on to recycle their capital gains into other New Zealand businesses and real estate developments. They also became pioneers in philanthropy, urban development and the private equity industry.
This trend continued throughout the 1990s as New Zealand followed its peers in pursuing economic liberalisation and embraced globalisation. These policy settings opened up new frontiers for New Zealand exporters, and the historical focus on traditional markets like the UK and Europe pivoted towards Japan and China. Free trade agreements with countries in Asia created opportunities for innovative exporters and entrepreneurial importers.
Around this time, the New Zealand government also started a process (that continues to this day) of paying multi-million dollar reparations to the various groups (known as iwi) comprising the indigenous Māori people. While financial settlements could never properly compensate for the intergenerational consequences and historical grievances of colonial rule, they have provided an opportunity for perpetual support and prosperity for iwi citizens. These indigenous governance platforms are, to some extent, similar to a multi-family office, and were pioneers in the institutional management of private capital. They are economic accelerators and sources of liquidity which fuel commerce and create employment and cultural connection in their local communities and beyond.
In the 2000s, New Zealand embraced information technology and all the benefits it provides to an isolated island nation. During this time, a few clever computer science graduates and entrepreneurs replicated some of the business success of their equivalents in Silicon Valley, and another new class of private wealth creators emerged. Many of these people went on to pioneer venture capitalism in New Zealand, and are still relatively young and active in trade, innovation and enterprise.
The Global Financial Crisis of the late 2000s affected New Zealand but didn’t have the same impact as it did in many countries, mainly due to a relatively conservative and well-regulated banking sector, and low government debt. Since then, and despite some shock events like earthquakes and the pandemic, many New Zealanders with real estate and financial assets have benefited from a sustained period of asset value growth fuelled by economic tailwinds, the longest Bull market in modern history, quantitative easing, low interest rates, immigration, and the absence of capital gains, wealth or inheritance taxes.
Another relevant factor is that New Zealand has had a successful residency by investment programme which, until recently, was accessible, inclusive and attracted many economically and socially impactful investor migrants. It was especially popular with US, European, and Southeast Asian migrants, and some of the world’s most impactful family offices have set up satellite operations to serve principals and family members who have adopted New Zealand as an alternate or primary residency. This led to the deployment of billions of dollars of capital and philanthropic grants, inside and outside the parameters of the programme. This flow of capital and talent has also exposed New Zealand’s private wealth advisors and service providers to international best practice through interaction with their foreign family offices and professional firms.
The evolution of the wealth profile of New Zealanders is reflected in a recent survey of high-net-worth individuals completed by the New Zealand revenue authority. The results show that significant private wealth has been created in New Zealand in the past 50 years and is mostly concentrated in the hands of a small percentage of the population. These people are, for the most part, the captains of industry, entrepreneurs, developers, and real estate investors who lived through those eras discussed in earlier paragraphs. With the passage of time, their children (the sibling partnerships) and grandchildren (the cousin confederations) are inheriting wealth and control with varying degrees of success.
This new wealth has, typically, been advised by real estate and commercial specialists with a strong emphasis on growing value and controlling the assets. Private wealth in New Zealand is often informally structured, governed, and administered relative to private wealth in other more mature countries. For example, in the absence of a regulated fiduciary services industry, it is common for governance roles (such as trusteeships) to be fulfilled by professionals who also provide legal or accounting advice and/or the family members who create and benefit from the structures of which they are a fiduciary.
This traditional way of doing things doesn’t always best prepare the family for intergenerational wealth transfer. One of the reasons for this is that as the wealth grows and family members proliferate, conflicts of interest become more difficult to manage. Another reason is that the advisors are not always experts in the intellectual discipline of organising private wealth, and structures are often designed for commercial risks and opportunities.
That is understandable where first generation wealth is concerned. But history has informed the global private wealth advisory sector that the biggest threat to private wealth is the people around the dinner table. This threat is no less acute in socially progressive New Zealand, where modern families are increasingly blended, multi-generational, multicultural, living across borders, secularised, urbanised and educated.
In response to this new paradigm, the New Zealand advisory sector is maturing, and private wealth planning is starting to be recognised as an intellectual discipline. The next generation of private wealth advisors in New Zealand are less transactional and more strategic and relational than their predecessors. They understand that the qualitative forms of private capital are equally or more important than the financial capital which fuels them.
Consequently, families of wealth are being exposed to global best practice and professionalising their private wealth. This involves them becoming more organised and strategic in the way their wealth is structured, managed, invested and distributed.
For example, these families are beginning to realise the importance of governance.
In practice, family governance is being adopted and evolving in New Zealand because families are taking some of these steps:
This evolution is encouraging and necessary if wealthy families in New Zealand are to sustain themselves and, more critically, retain social license in a country more affected by wealth inequality than at any other time in its history. Child poverty, declining standards in public education and healthcare, fiscal deficits, climate change, an aging population, and the transition to sustainable industry and agriculture are defining issues of a generation which will need both public and private capital to address. But, as in other parts of the world, the wealthy in New Zealand are sometimes targeted by media, politicians, and even their peers, as being part of the problem rather than the solution.
It is therefore encouraging that many wealthy New Zealand families are using their platform of privilege and access to expert advice, resources, and influence, not only to benefit themselves but also to accelerate the economy and drive positive systems change.
For as long as this evolution continues, these families will need the ongoing support of experts in the organisation of private capital.
Henry Brandts-Giesen
Henry is a leader in the Family Office & High Net Worth Group at Dentons. He is jurisdictionally neutral and operates globally to develop wealth strategies and provide/procure global solutions for global clients from within and beyond the Dentons platform.