Capital Preservation

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Capital Preservation

• Adrian Orr
• Hui Taumata
• March 2005

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What creates economic growth?

• More inputs (capital, labour)
• More outputs per input - productivity
• Different outputs per input - innovation
• Entrepreneur Innovator Growth
• The actual asset is not a big part of the picture

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Do things better and better things
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The weightless economy
Knowledge
Experience
SERVICE
PROCESS
GROW
DIG
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NZ biotech advances
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Capital

• Investment is the increase in capital stock
  (human, physical, financial)
• Profit is the reward for making the investment
• Preserving capital is
• a profit that compensates in real terms for
  the effort made i.e., a risk-adjusted real return

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Investment Principles

• Clear Goals Objectives
• Long term growth strategy
• Investment plan to achieve goals
• Skills, knowledge, experience resources to
  implement plan
• - Business knowledge, Strategic planning,
  Governance
• - Management, Leadership

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Types of investment
High Risk
Low Risk
Listed Equity
Bonds
Cash
Private Equity
Listed Property
Venture Capital
Indirect Investment (Traditional Markets)
Direct Investment
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Indirect Investment the boys for the job?
Responsible for Goals Objectives time
horizon and cashflow needs Investment plan to
achieve goals Benchmarks and accountability
Ownership without responsibility or control

• Examples
• LENDING (debt)
• Cash (money market)
• Fixed Interest
• EQUITY OWNERSHIP
• Shares
• Property
• LEASING - LANDLORD

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Direct InvestmentJobs for the boys?

• Responsible for
• GOVERNANCE
• MANAGEMENT
• CAPITAL
• FINANCIAL CONTROL
• INDUSTRY EXPERTISE
• TECHNOLOGY
• RESEARCH DEVELOPMENT
• MARKETS

• Own Control
• Examples
• Start ups
• Buy existing business
• Joint Ventures

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Access to capital?

• Bankable when
• Respected management
• Credible and commercial board
• Underlying assets have good cashflow
• Direct equity when Greenfields project

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Attracting capital?

• Credibility Board and Management
• Ability to make decisions in commercial time
• A track record in the game
• A rare asset or unique hedgehog
• Ability to put skin in the game

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Governance - Trustee Role

• What business are we in?
• What business could we be in?
• What business should we be in?
• What business will we be in 1, 5, 10 and 20 years
  from now?

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The stages of a business

Cash Cow
Rising Star
Dog
? New
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Maori investment challenges

• Education attainment
• - Skills, Knowledge, Experience
• Location
• Assets
• Property rights
• Access to capital
• Governance
• The will?

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What will we look like in 2025?

• Strong, well regarded, commercial structures
• Sustainable cultural-environmental backdrop to
  all business
• Empowerment and trust of owners to make decisions
• Flawless implementation
• Setting the global benchmark for indigenous
  people in sustainable development