Punakaiki Fund Interim Accounts – September 2017

Cross Posted from PunakaikiFund.co.nz

We have released our September 2017 interim accounts, which are the half-year financial snapshot. These show that the assets of Punakaiki Fund were $31.56 million at the end of the quarter, of which $29.25 million was investments.

The accounts show a profit of $1.145 million for the half-year, but we believe the more important piece of reading is the statement of cash flows.  This shows that net cash used in operating activities was $213,000, which represents just 0.67% of total assets, or 1.35% on an annualised basis.

It helps that the cash costs were partially offset by dividend income of $138,000, which combined with a small amount of interest income represented 40% of the total cash spent on operating activities.

Most of the cash spent was on management fees, at $292,000. These fees are charged at 2% of the net asset value, plus GST, and paid each quarter in advance. The main other costs of $51,000 were for items such as insurance, audit fees and accounting fees.

Looking forward the good news is that we have received dividend income of over $200,000 for the current half-year to March 2018, so we will see another good net cash result for the current six months and the year-end accounts.

Obviously as the size of the assets under management grows we expect to see higher costs, as we increase the amount we pay for management fees, external suppliers, and we will also need to increase director fees. We do remain vigilant to ensure that the costs do not get out of hand versus the amount of assets, which is the primary reason we want to ensure we are at $100 million before we are a listed company.

Please get in touch if you have any questions.

Punakaiki Fund New Investment: Coherent Solutions

Cross posted from Punakaiki Fund.

Punakaiki Fund is undergoing an offer to all New Zealand investors at the moment (closes on Thursday 21st). Read about it on the PunakaikiFund.co.nz website, where you can also find the Product Disclosure Statement.


We are very happy to publicly announce our investment into Coherent Solutions.

Coherent Solutions builds advanced coherent (laser) and non-coherent light testing equipment, primarily for the development and manufacture of fibre optic telecommunication components and systems.

More simply they sell impressive, and very expensive, equipment that’s used to test the highest speed telecommunications gear.

Modular Optical Test Platform – chose your blades (examples below)

The company also has a number of new technologies in development which will expand its market from labs and advanced research and development facilities to hi-tech manufacturers.

Blades for the test platform. On the left an optical electrical converter, and on the right (or below) a variable optical attenuator (a fancy volume control for output power).

Coherent Solutions is headquartered on the North Shore in Auckland. It was founded as a spin-out from Southern Photonics, itself a spinout from some research developed by Auckland University and commercialised with the assistance of Uniservices. Coherent Solutions’ founders are Andy Stevens, who is the CEO and Iannick Monfils, the CTO, and with the help of a very talented team have built the company into a substantial business. Coherent Solutions has customers from around the world, including marquee brands in USA, China and Korea.

Coherent Solutions Optical Receivers with Teledyne Lecroy Oscilloscope. The Optical receiver converts optical signals into electrical signals that are then analysed by the oscilloscope in real time. This equipment is transmitting data at a tremendously high rate. 


Investment Details

We made our first investment into Coherent Solutions in mid November, but held off on public announcement until the other investors were ready. 

We have committed to invest half of a headline $3 million round, and aim to complete this before the end of the year (we have not yet paid it all). We also have the option to purchase a substantial additional number of shares from founders, to be completed before the end of March 2018.

The other half of the $3 million headline investment comes principally from three New Zealand based investors.

The first is K1W1 (Stephen Tindall’s vehicle), which is now the second investment, after Melon Health, where we are co-investors. We are delighted to have them join us.

We are also joined by University of Auckland’s Inventors’ Fund. This is a $20 million fund focused on investing into companies that are commercialising IP generated by researchers and students affiliated with the University of Auckland. The original IP for the predecessor company to Coherent Solutions came out of the University of Auckland, and Auckland UniServices still maintains a shareholding (via the original company) in Coherent Solutions.

The investment proposal went through the Physical Sciences Return on Science Committee, which recommended the investment to Auckland UniServices. I am a member of that Committee, and as a conflicted party (including as a Coherent Solutions director) sat with the Coherent Solutions team during their presentation, and left the room for the discussion and decision about the Committee’s recommendation. I am very happy to see these two worlds collide and welcome the Inventors’ Fund and Auckland UniServices on to our co-investor register.

The next co-investor may surprise many people – as it is the NZ Venture Investment Fund. NZVIF has two sorts of funds – the first that invested directly into Venture Capital firms, and the second (SCIF) that invests alongside angel investment groups. Each traditionally came with a lot of conditions, and I have publicly and privately fought for many years for the NZVIF influenced term sheets, contracts and ways of doing business to be simplified and improved.

Time has moved on. For this deal NZVIF us investing $500,000 using the same Shareholders Agreement and other contracts that we agreed with Coherent Solutions. We were not required to be accredited or sign any agreements with NZVIF, and are very happy to see NZVIF unshackled to act like an ordinary investor.

The press release from Coherent Solutions is below.

Coherent Solutions Raises $3 million
15 December, 2017

Coherent Solutions, a world leading provider of high-end testing equipment for the optical telecommunications market, announced today the completion of a $3 million A-Series investment round. The investment round was led by New Zealand’s Punakaiki Fund and supported by K1W1, NZVIF, and Auckland University’s Inventors Fund.

Based in Auckland, Coherent Solutions develops and manufactures advanced test & measurement solutions for the optical communications market – a core technology of the global internet. “Our instruments are used in many of the leading research labs across the globe by scientists and engineers developing the next generation of telecommunications technologies” says co-founder and CEO Andy Stevens.

In 2018 Coherent Solutions will launch a series of new products with two new strategic partners, opening new markets and creating opportunities for significant revenue growth. The funding will be used to accelerate the development of products for these partnerships and to increase sales capacity.

Andy Stevens says “This is our first funding round, which comes after five years of strong organic growth. We now have several very large customer-driven opportunities where we needed external funding to drive forward. We are focused on driving rapid growth over the next three years, and that means new products, new partnerships and a much larger team.”

The Coherent Solutions brand, which has a strong reputation in high-end research labs, will now start to appear in production lines for fibre optic communication systems, modules, and components.

Andy Stevens will be joined on the Board by co-founder Iannick Monfils, and Lance Wiggs, from Punakaiki Fund. The company intends to add an additional two Independent Directors over the next few months.

“Coherent Solutions will be a substantial investment for Punakaiki Fund” states Lance Wiggs, “and has the potential to be our largest cash investment, if we include our arrangement with founders. We see that with global demand for data and bandwidth ever increasing the demand for testing equipment to run ever more sophisticated optical communication networks will also increase. Coherent Solutions has impressed us by their ability to gain a foothold into this global market which is dominated by large, multinational instrumentation companies, and have a well-defined growth strategy. We are excited to be part of this successful New Zealand story”.

Punakaiki Fund December Offer – Now Open

Punakaiki Fund’s regulated offer to New Zealand investors for December 2017 is now open, and will close on Thursday 21st December. The next retail offer will not be until after 1 August 2018.

Read the Product Disclosure Statement

New investors are able to participate by filling out the application form at the back of the PDS, or, more simply, though our online process below:


Read more about the highlights of the Offer on our investor page. As always the PDS is the definitive source of information for this investment.

Linewize Acquired by Family Zone (ASX:FZO)

Cross post from Punakaiki Fund

We are delighted to announce the sale of Linewize to Family Zone Limited (FZO.AX). Family Zone have released a comprehensive announcement to the ASX.

Why the combination works
There was almost immediate agreement, at the start of negotiations, that the combination of Linewize and Family Zone was good for both businesses. Linewize provides world-leading technology for firewall, filtering and classroom internet management tools, and has 260 New Zealand schools on board. Family Zone has a disruptive business model (selling on-device filtering software to parents via school mandates) and is growing very quickly in Australia, and can rapidly expand the use of Linewize’s technology. They have also signed deals with large telecommunications providers. The combination is a strong sales and marketing engine on top of some excellent technology, and better geographic coverage for all.

Linewize founders Scott Noakes and Michael Lawson were very keen to join Family Zone, and we collaboratively worked with them and Family Zone to arrive at a negotiated agreement that is good for all parties.

Family Zone will acquire 100% of the Linewize shares in return for up to 19 million shares in Family Zone, along with a small deposit of $200,000. Half of the Family Zone shares are “Performance Shares” and are only released, in five tranches, when certain performance hurdles are met. See the Family Zone announcement for more on this.

There is a short due diligence period now, after which the deal becomes unconditional. The issue of Family Zone shares as compensation will need shareholder approval at a Family Zone shareholder meeting, likely to be in late November. If the Family Zone shareholders do not approve the issue of Family Zone shares then the consideration price will be paid in a fixed amount of cash.

Founders Scott and Michael put in place a generous ESOP plan before Punakaiki Fund invested, and so the current and recent employees will share 16% of the consideration, as well as staying on with the business. Scott and Michael each receive 32% of the consideration. We are delighted with the result for Scott, Michael and the team, and commend them on their efforts and on this deal. Scott and Michael will stay with the business as executives, and will each be issued 1,000,000 Family Zone Executive Performance shares in addition to their base compensation and their consideration from this sale.

Punakaiki Fund Result
Punakaiki Fund holds 20% of Linewize, after an original investment of $1 million, spaced between June and December 2016.

If the Family Zone shareholders do not approve the issue of shares then Punakaiki Fund will receive AU$1.33 million (~NZ$1.5 million) in consideration shares, and the performance share compensation will be issued as cash using the share price at the time. We see that shareholder approval is highly likely.

Family Zone is a small company with a share price that has appreciated very quickly since their IPO a year ago. To provide against any risk of the share price falling between now and the Family Zone shareholder meeting, if volume weighted average price (VWAP) of the Family Zone shares is under AU$0.70 for the five days before the meeting then Punakaiki Fund’s number of shares will be increased to compensate. The share price closed last Friday at AU$0.855.

Punakaiki Fund will receive 1.9 million Shares and 1.9 million Performance Shares in Family Zone, as well as $40,000 from the deposit. We will use some or all of the deposit to contribute to deal costs and ensure the working capital is acceptable at the time of the transaction. At Friday’s closing share price of $0.855 per share this has a face value of AUD$3.29 million, or NZ$3.69 million. However the consideration is in listed shares, and half of them are locked up until (or if)  performance targets are met, so the value could go up or down.

Extracting Value for Punakaiki Fund

Punakaiki Fund will be able to sell the initial 1.9 million shares as soon as they are received after the Family Zone shareholder meeting. However at this stage we do not know what our strategy will be, and we are conscious that we will have a relatively large holding and will exercise caution whatever our decision.

Wholesale Round

It’s older news, and was covered at the Punakaiki Fund AGM, but we realised that we had not released the official results for the July 2017 Wholesale Offer. We closed this offer in early September, after being extended twice by the Board. The Board firstly elected to extend the offer until the end of August, and then another few days to allow the finally paperwork and funds to be received.

We deliberately kept a low profile for this offer, with very limited engagement with prospective investors. We were delighted with the result of $1.8 million raised from 11 investors, and welcoming 9 new investors.

Investor Statistics
We now have a total of 625 investors, with an average holding of just under $44,850, at $20 per share. That’s more than several listed companies, including Family Zone.

As a sign of our success with larger investors, we now have 80 investors with holdings, again at $20 per share, of $100,000 or more, and 130 with $50,000 or more.

John – the real issue here is results, not dance partners

John Hart has written a series of tweets about why a Blue Green coalition wold not work.

That saddens me. It’s the politics of can’t, or lack of hope. A smart party would be working all sides of a deal to find the bet path forward for their policies.

At stake is the rapid pace of Climate Crisis and of the adoption of electric vehicles, distributed power, batteries and so on. The Green party have been thinking about these issues for a long time and have a series of polices and people that will set our economy and society up to succeed in the times of turmoil ahead. It’s not time ti hiker down for another three years, but time to cut a deal, a good deal, with whatever party is going to be leading the new government.

At the moment the Greens have zero negotiating power – they have ceded it all to Labour by refusing to treat with National, and their members are not helping their own cause by reiterating the same. By painting themselves into this corner they will either end up in opposition again, with limited action on the causes that matter, or they will get what they are given in a red black and green coalition. Labour knows that the Green Party will join them in coalition no matter what, and can afford to offer a far better deal to NZ First.

But what if NZ Greens treated with National? They might be offered a better deal than from Labour and NZ First. That deal would change the brokers of this election from NZ First to NZ Greens, and then the negotiating could really get going.

Imagine a Greens deal for National that required:

1: Climate change as part of every cost benefit analysis/policy document, and a significantly boosted part of the Business Growth Agenda, with carbon emissions costed at $50 per tonne rising to $100 per tonne over 10 years. (This will drive transport and mining decisions)

2: $500 million per year allocated to cleaning up rivers, funded by a tax on farmers who are not abiding by a Sustainable Farming Code of Conduct. Fund decreases as farmers move into more compliance.

3: A falling cap on the amount of land used for cattle farming. Farmers will like it as their land will become more valuable.

4: $200 million per year into a series of linked habitats for native birds, and creation of 10km wide marine sanctuaries every 50  km of coast.

5: Julie-Ann Genter as Minister of Transport, James Shaw for Climate Change etc

6: Local bodies required to prepare for 1.9m sea rise from climate change, per the hidden report

7: Moratorium on any new mining or drilling operations, and increase of royalties of 4x.

8: Agreement to settle water rights with iwi and to allow each iwi/region to set a price for their water. Minimum price to apply.

9: Introduce a carbon tax at $5 per tonne, rising by $5 in the second year then $10 per tonne per year for 9 years. Charge it like GST with cascading carbon tax applying. No exceptions, including farming.

10: Use the proceeds of the carbon tax to invest in carbon reducing systems (public transport, lower methane emissions from belching cattle) and to subsidise entities who spend more money to lower carbon emissions.

11: Take 100,000 children out of poverty in 3 years, where poverty is defined as <definition> and annual targets are met or coalition fails.

I can imagine National negotiating and then agreeing to some, most or close to all of this. Some of it would be very tough, no doubt, but they have already agreed to 11, understand how to do 8 in a way that doesn’t destroy businesses and farms and are excellent at implementing big projects – this time public transport instead of roads. Some of the others are relatively cheap, and the biggest issue (and something worth fighting for) is the carbon tax, but if done well can be used to lower business and personal income tax – long a National goal.

That’s a Blue-Green Coalition. It aims to achieve goals for both parties. And a coalition like that would leave both parties stronger.

Why would Green Party members not support this? The answer is perhaps “because we don’t like National because of past behaviour” or “We don’t want to be crushed by being a coalition partner to National

These are selfish motivations, and quite unlike the entire ethos that Green Party lives by. I’ve always seen the Green Party as a movement that is endeavouring to achieve certain environmental and societal goals, and they have welcomed it when other parties have adopted their policies. A coalition agreement like the above is one where they would achieve genuine lasting change could be put to members, and members strongly encouraged to vote.

Ideally another agreement with Labour and NZFirst would also be presented, and a genuine dilemma could emerge. What if they can achieve more with National than with Winston and Labour?

Real change happens when you move the normal – and there is no better way to change society to be Green than by moving National towards the solidity of long term green economics.

Could Auckland attract or retain the next Amazon?

I had idly thought that Amazon’s RFP for  a second headquarters  location could be answered by Auckland. Sadly, albeit unsurprisingly, the request is for a North American location.

Perhaps we should still try –  after all the size of the prize is enormous:

Amazon is careful to show that they will create value well beyond that of the company’s investment in capital and salaries. Later on the expectation is that the winner will pay some of that benefit to Amazon.

The Case For Auckland

So while we are not in North America, its worth considering the RFP to see what sort of factors (“key preferences and decision drivers) a smart company like Amazon finds attractive, and whether or not Auckland is able to deliver. We should aim to be a city and country where we can host local or offshore companies that are as successful as Amazon.

Their overall preferences are for:

We can definitely tick those boxes here in Auckland, and I’d far rather live here than in any of the mooted locations in the US or Canada.


“finding suitable buildings/sites is of paramount importance”

Amazon are looking for existing buildings, a greenfield site ready to go, or a combination. A greenfield site would need to be 100 acres. Wynyard Quarter in Auckland, for comparison, is 86 acres, not too dissimilar from the required size. It is in the middle of a transformation to mixed offices and residential, with most of the industrial operations being moved out.

While Amazon are happy with a site within 30 minutes of downtown, there is at least one other site nearby that could be interesting, as highlighted below. While fans of ports and golf courses would not agree, it’s worthwhile comparing, if academically only, the value created by each versus that touted by Amazon.

There is also the city itself – with a lot more densification possible downtown by building several courageously large towers.

Amazon’s location does not have to be downtown – merely within 30 minutes of the city and 45 minutes to the airport. But they also want their own train station, as well as access to other forms of public transport.

As it happens the port location would probably best deliver on access to mass transit, showing the value of that space. Leaving that red herring aside the CRL project will put stations within reach of most downtown locations. There are also plans for light rail to and beyond Wynyard Quarter, which would begin to be great if it also went across the harbour to the North Shore.

If we can provide mass transit so that the airport is 30 minutes away from the city (as it is now by car at most times) then a lot more possibilities would open up. I have probably highlighted some areas that are absolutely not available, but the point is that there is a lot of land out there.


There is plenty of public transport and liveability momentum, plans and ideas, and there seems to be enough space in Auckland. However Auckland is not yet able to credibly provide the combination of land and high quality public transport for a firm like Amazon. The implications are that we should continue to build our public transport and keep thinking about the value of the port space (and the cost of alternatives).

Amazon invests heavily in sustainable buildings and renewable power. New Zealand does provide a very high percentage of renewable power from the grid, but, despite an excellent power framework, has some progress to make when it comes to managing private power supplies.

Capital and Operating Costs

A stable and business-friendly environment and tax structure will be high-priority considerations for the Project. Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process.

While it may be hard for a NZ government to match US cities with incentives there is no arguing that our tax system is simple, and our business environment is very stable and amongst the world’s best.


Identify incentive programs available for the Project at the state/province and local levels. Outline the type of incentive (i.e. land, site preparation, tax credits/exemptions, relocation grants, workforce grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers.

Incentives are so important that Amazon put them twice in the list. Again I can’t really see an NZ government falling over backwards in today’s economic or political environment. The scale of the deal is a bit too large, we fundamentally believe in fairness and finding jobs for high tech workers is the least of our problems.

Labour Force

The Project must be sufficiently close to a significant population center, such that it can fill the 50,000 estimated jobs that will be required over multiple years. A highly educated labor pool is critical and a strong university system is required.

Auckland gets a tick here, with 3 top universities present and as destination for graduates from every university in New Zealand. The jobs will be highly paid, so accomodation won’t be so much of an issue. The downside is that rents and house values would go even higher and the burden on those who cannot it.


Personnel travel and logistics needs, both from population centers to the Project site, as well as between company facilities, are critically important.

Amazon wants direct flights to Seattle, San Francisco as well as NYC and Washington DC. We can provide the first two at least, though they would be shocked at their down time between cities. Out national airline has requested Boeing, a company that decamped from Seattle for Chicago in 2001, and Airbus to develop planes that can fly directly to the other two cities. That might take some time.

Amazon also want access to local highways to access other North American Amazon locations. We might suffer a bit on that paramter.

Time to Operations

The Project requires an expeditious timetable for the location decision and the commencement of construction. Given this, sites with the requisite access, utility infrastructure, and zoning are critical. Please outline the permitting process and estimated timetable to initiate Phase I of our operations.

Amazon wants to get going quickly. Auckland has almost twenty cranes at the moment, and while we can probably expedite some of our regulations there should be no real barrier to a new build. Some US cities though would have large free spaces, for example Detroit with the remnants of the crippled motor vehicle industry.

The work by Panuku and private developers in Wynyard and Britomart, along with the CRL and bike lanes show that Auckland can think big, although perhaps Amazon scale would be a level up again.

Cultural Community Fit

Cultural Community Fit – The Project requires a compatible cultural and community environment for its long-term success. This includes the presence and support of a diverse population, excellent institutions of higher education, local government structure and elected officials eager and willing to work with the company, among other attributes. A stable and consistent business climate is important to Amazon.

New Zealand is commonly in the top ranks of places to live, and for good reason. We have a very diverse population, the world’s best relationship between a country and its indigenous people and many efforts to bridge across cultures. We will always have more to do, but we crush the USA on this measure – not least because our police don’t shoot people.

A stable business climate is critical to New Zealand, and we have been one of the top few easiest places to do business or many years. Meanwhile our local and national government systems make the USA’s look both corrupt and Byzantine.

Community/Quality of Life

We want to invest in a community where our employees will enjoy living, recreational opportunities, educational opportunities, and an overall high quality of life. Tell us what is unique about your community.

This is our greatest strength, where we take the ability to go to the coast, breathe fresh air and drink fresh water for granted. In Auckland we have a Council that, thanks to the Super City, is delivering strongly to increase liveability and workability.

Yes we can argue that we have taken things a bit too much for granted when it comes to water, and there are people living on the streets which is unacceptable. But without getting too political there is cross-party support, and very strong efforts by some, to solve these issues.

Other factors


The UFB program is something the National government got absolutely right over there last 9 years, and we are blessed with fibre to the business and to many homes. However Amazon would need to buy a lot of capacity on existing sub sea cables, or probably even build their own.

Climate Change

Sadly for the Port and Wynyard Quarter options the viability of those spaces is relatively limited over the next 50 years. With the current emissions on track to, as Schroders Bank reported, hit a 4.1 degrees rise by 2050, that land will be come unuseable, and certainly unsuitable for intensive development.  Perhaps that’s why the report stating that Councils should be assuming 1.9 meters for sea level rise was buried by the government earlier this year. Wynyard Quarter, as reclaimed land, is just 1.3 meters above high tide level.



It’s a short document, but we can all learn from Amazon’s perspective, kickbacks aside, of what makes a great place to live and work. Auckland stands ready, distant location and lack of a decent train system aside, to offer Amazon a new home.


Stop complaining about rates in Auckland

The Taxpayers Union is a lobby group who, seemingly, would like to get rid of all tax. Insider Dave Farrar covered their latest attack on tax, which is on rates in Auckland.

It’s ridiculous. We actually have a great deal here and we have the opportunity to invest a lot more into making Auckland even better.

So let’s walk through the basics about rates, a tax that we use to fund councils to provide transport, infrastructure and all sorts of other services. Rates that are paid by Auckland ratepayers will substitute somewhat for tax paid to the national government, which needs to invest back into Auckland. So higher rates for Aucklanders should lower Wellington resident Dave Farrar’s own taxes, so I’m sure he will be a fan.

Firstly 34% of people and 32% of ratepayers live in Auckland, and 50% in Auckland, Christchurch, Wellington and Hamilton. So when it comes to ratepayers the cities matter. Auckland is growing very quickly, and has a legacy of underinvestment to catch up on. We need to spend a lot more than we are getting.

Number of Ratepayers by Region

The average rates paid per home vary by district. There seems to be no pattern between the size of a population and the average rates paid. The chart below is sorted, again, by population.

Rates paid per home

However we see that Auckland and Queenstown Lakes average house prices are well above the rest, while in general the cities have higher average house prices prices than the smaller rural areas.

Average Home Price

But the cities seem to pay lower rates as a percentage of their home value, and Auckland in particular looks suspiciously low.

Annual Rates Paid/Average Home price (July 2017)

Auckland has the lowest rates in New Zealand

Sorting the list by Rates Paid/Average Price shows that Auckland is offering the lowest rates in the country, at just 0.22% of the average house price per year.

That’s almost 30% less than the 0.31% fees lowest cost Kiwisaver provider Simplicity charges to invest your money and over 75% cheaper than Fisher Funds charges for their more traditional (expensive) Kiwisaver plan.

Think about it – it costs less to provide all the infrastructure for a home owning ratepayer’s Auckland needs than it does to manage the cheapest Kiwisaver plan. It costs less to provide all those services – while that housing investment is growing in tax-free value. It’s an absurdly great deal for the ratepayer.

No wonder so many people want to live here.

Annual Rates Paid/Average Home price (July 2017)

Plenty of room to rise

The average rate payer in New Zealand pays just 0.35% of their house value each year, still far less than most Kiwisaver providers.

If we had a single nation-wide standard rates fee as a percentage of home value then we would have a national rate of 0.35% of home value. That would mean rates in Auckland would rise by 50%, in Queenstown Lakes by 29% and everywhere else the rates would fall.

So here in Auckland we underpay our rates, and the national government has to subsidise (and they don’t enough) our infrastructure more than they should. they certainly pay their way in Waitomo –  if Aucklanders paid as much as they did there then rates would rise by 550%.

A 50% rate rise in Auckland is entirely justifiable, and the rest of New Zealand should be demanding we pay our fair share, and lowering their rates too. But can Aucklanders afford to pay more?

Yes, yes we can.

Over just the last year homeowners have, almost everywhere, made substantial capital gains and once again Auckland’s did very well.

Let’s compare those tax-free capital gains last year with the actual rates paid last year. The capital gains are the long orange lines below, and the rates are the barely visible blue lines. Remember this is just last year – Aucklanders have enjoyed a sustained period of growth in property values.

Average Capital Gain/home in 12 months to July 2017 versus average rates paid

Last year alone Auckland ratepayers averaged a tax free gain of $52,000 from each property, and they paid an average of just $2,340 in rates. The gain is 2226% greater than the cost, a ratio any Kiwisaver fund would be proud to brag about.

We all need to stop complaining our rates, especially those who can afford to pay them with cash, and who are sitting on vast windfall gains.

If you can’t afford to pay then check out the programs that Auckland Council has for low income households. Or talk to your bank about how to cash in on your windfall gains.

So let’s start talking about the great deal we have in Auckland, and our capacity to increase rates. Let’s start thinking instead about how we can accelerate some of the transformational progress that has been made already.


I copied some data from the Taxpayers Union microsite [they want your details], and added the July 2017 data from the QV Residential House Values page for July 2017. I removed Kaipara and Waimakariri (1.6% of population) from some of the data as they did not have compete stats. All mistakes mine. 

Punakaiki Fund 2017 Annual Report

We released the Punakaiki Fund 2017 Annual Report last week.

The assets have grown from $1.5 million in April 2014 to $28.4 million at the end of March 2017, with the iNAV/Share rising from $10 to $20.10 in the same period. The iNAV is the “investor net asset value per share” and not a GAAP measure. We see it as the most pertinent measure to use as it is the measure that relates to the share price.

That’s a good, if realised, return for our investors. Our internal calculations show a 45% IRR based on the unrealised investment value increase, driven mainly by companies we invested in two or three years ago.

We now have have investments in 19 companies, in seed, very high growth and more mature growth stages (e.g. over $10 million revenue), with most of the value split between the latter two. The smaller ones grew by over 600% (on average) over two years, while the medium ones were over 400% and the large ones over 130%.

We continue our focus on placing most almost all funds with companies that have growing revenue, with the combined FY2017 revenue estimated at $69.5 million in the annual report. We closely monitor financial sustainability, aiming aim to invest into companies that can maintain their viability without raising further funds, and almost all of he investment value is in that category.

As always our principal issue is raising enough funding to place with the companies. We do run periodic offers so get in touch if you are a wholesale investor (e.g. over $100,000 to invest) or any potential investor can sign up to the mailing list from Punakaiki Fund.

We keep our frugal approach to using investor funds during the year, and our net cash used in operating activities was just 1.7% of assets. Compare this to other funds that invest in (and are active directors of) private companies. Moreover we do not take money from the companies themselves – other than reimbursement for travel.

NZ Household income – addressing the gaps

This chart from the Household Incomes Report is worth deeper inspection.

Each row adds up to 100%, so, for example, 12% of people 0-17 are in the top quintile (top 20%) of households by income.


I want to call out three findings:

Maori and Pacific Island households are much less likely to be wealthy, and likely to be poor. We need to do better.

25% of European/Pakeha households are in the top 20% of earners, but only 9% of Maori and 6% of Pacific Islanders are in the top 20% of earners. 33% of Maori and 35% of Pacific Island households are in the bottom 20% of earners.

That’s a systematic gap that percolates throughout society, and we need to fix it.

Old people are poor (in income), but well looked after.

35% of households with 65 year olds earn in the bottom 20% of household incomes and just over half of all 65+ year olds living alone have income in the bottom 20%.

Our society has delivered to these people with a guaranteed basic income (superannuation), free health care and free public transport travel.

Single parents are poor, but not so well looked after.

50% of single parents are in the bottom 20% of household incomes.

We have not provided these parents with a no-strings guaranteed basic income nor with free public transport.

They have more expenses than old people (aside from health care) and making sure their kids are raised in a secure environment has large and positive future impacts on society. We can do better.


NZ is a great place to live

New Zealand is proving to be a popular place to live, as witnessed by the increase in net arrivals.


More people are arriving and fewer people are leaving.

We have our issues, but it’s nice to reflect now and then that yes, we do truly live in a place where people want to live.

I’m reminded of that each day as I look out the window at work at the crowds of happy tourists visiting Auckland’s Art Gallery, or as I wander through the streets of downtown Auckland, Britomart, the Viaduct and Wynyard Quarter.

I’m reminded each time I fly to another city in New Zealand – on average one a week – and feel blessed not just for the wonderful destination and people, but also for the simplicity of the journey on our national airline.

I’m reminded whenever I listen to the National Program from RNZ, and compare and contrast with any media outlet offshore.

I’m reminded when I experience our healthcare system, our natural abundance, and, even, our taxation and welfare system.

We are a beacon of political sensibility in a world increasingly pressured by political turmoil.

We are a society that has deliberately worked hard at fixing underlying issues caused years of institutionalised discrimination, recognising the central role of the Tangata Whenua in New Zealand,  working through treaty settlements and along the way realising and promoting a true multi-cultural society. We welcome all people.

We are consistently ranked as one of the best places in the world to do business – and it’s increasingly clear to me that this is based on fact.

We are the lucky country – lucky because we have worked hard at being a great place to live.


Locals and people from offshore are voting with their feet. Right now it’s a great time to be in New Zealand. Join in and help us get even better.

Punakaiki Fund Exceeds Expectations from 2015 Crowdfunding Offer and makes Three New Investments.

A press release from Punakaiki Fund. Punakaiki Fund Limited is raising capital through a Product Disclosure Statement (PDS). Investors may apply at Punakaikifund.co.nz/InvestNow or via Snowball Effect.


19 December 2016

Punakaiki Fund Exceeds Expectations from 2015 Crowdfunding Offer and makes Three New Investments.

Punakaiki Fund has exceeded its Key Performance Indicators (KPIs) set as part of the June 2015 crowdfunding offer on Snowball Effect’s platform.

Punakaiki Fund manager Lance Wiggs says each of the KPIs were not just met but exceeded.

“Our Net Asset Value per share rose by over 26% in the 12 months after the offer, while in 2015 we appointed three new directors to the Punakaiki Fund board,” he says.

The results come after a strong year from the portfolio of 18 companies. “We invest in growth, and the hard work from the hundreds of people at these high growth  companies is paying off” says Wiggs.

Punakaiki Fund also announces three new investments into existing portfolio companies.

The first, increasing the shareholding of school firewall providers Linewize (LINK), was signalled in the Product Disclosure Statement and lifts Punakaiki Fund’s shareholding to 20%. Linewize CEO Scott Noakes says he is very pleased with the investment and says, “We are expecting continued strong growth in New Zealand over the next 12 months and have also launched our partnership with Hapara in the USA, with a team visiting our first installations this month.”

The second investment leads a small internal investment round with Mobi2Go, and lifts Punakaiki Fund’s shareholding from 11.0% to 12.6%.

CEO and Founder Tarik Malett thanked Punakaiki Fund and says, “The funds are primarily being used to support our expansion and we are focused on new opportunities with large franchises including fuel stations and restaurant chains. Meanwhile our development team isn’t standing still, recently optimising our core code to run 50% faster, reducing our infrastructure costs by 25% and delivering a noticeable speed increase to customers.”

The third committed investment is the early exercise of half of the options held with NZ Artesian Water, raising Punakaiki Fund’s shareholding from 11.8% to 16.1%. Founder and CEO Andrew Strang says, “We are overwhelmed with demand from several very large global customers for our E’Stel bottled water, and are using these funds to buy new plant to expand our capacity.”

NZ Artesian Water’s Nelson plant was opened by Prime Minister John Key in March 2015 and is already showing signs of strong growth.

“We just had our biggest month of sales ever – more than double our next biggest month, and we are aiming to increase monthly sales by over five times over the next six to eight months. We need to invest in our plant so that we can keep up with demand,” says Strang.

Punakaiki Fund has received investor commitments for $1.8 million so far in the current public offer, which closes on Tuesday 20th December.

Wiggs says, “These new investments show the demand for our funds from great companies. Each of them is growing their revenue at a very high rate, and these and others would benefit from even more funding to accelerate that growth.”




KPI 1: Net Asset Value per Share rises by over 20% in 12 months

The Net Asset Value per Share, as defined during the 2015 crowdfunding offer, rose by 26.4% in the 12 months from the offer closing on July 1 2015 to June 30, 2016.

The closing date of the crowdfunding round was 1 July 2015, but some shares from the three offers at the time were only issued during the month of July. This analysis uses pro forma accounts as at 1 July 2015 as if all shares were issued and all capital raised had been received.

Punakaiki Fund Limited completed a full valuation exercise as part of the preparation for the current offer to the public in September 2016, and the result (the Net Asset Value rising by 34.8% over 15 months) represents a similar percentage increase on an annualised basis.

Punakaiki Fund has subsequently refined the definition of Net Asset Value for communication with investors. They now use the term Investor Net Asset Value (iNAV) to refer to the key benchmark that investors should track, as it also accounts for the equity portion of Punakaiki Fund’s manager’s accrued performance fee. Using this investor rather than accounting-centric measure shows slightly lower returns of around 25% in the 12 months after the crowdfunding raise.

The price for the 2016 offer was $14.50 per share and the current public offer is priced at $19.00 per share. These prices include brokerage of 3%.

  July 1 2015 Pro Forma June 30 2016 Sep 30 2016 Current Offer
NAV $10,708,589 $18,112,940 $19,320,663 $19,940,803
iNAV $10,351,250 $17,307,152 $18,330,646 $18,936,819
NAV/Share $14.31 $18.09 $19.29 $19.37
iNAV/Share $13.83 $17.28 $18.30 $18.40
NAV/Share increase   26.4% 34.8% 35.4%
iNAV/Share increase   24.9% 32.3% 33.0%
Shares on issue  748,331 1,001,466 1,001,466 1,029,286

Summary table of changes in NAV and iNAV.

KPI 2: Present an independent director to the shareholders for vote within three months

Punakaiki Fund presented three directors to shareholders for shareholder vote within three months of the Snowball Effect Offer at Punakaiki Fund’s 2015 Annual Meeting. These candidates, Mike Bennetts (Z Energy CEO), John Berry (Pathfinder Asset Management) and Bryan Hutchins (Real Journeys), were selected after a call for nominations from shareholders.

All were voted in with overwhelming majorities at the 2015 Annual Meeting.

Lance Wiggs says, “Frankly we were overwhelmed when the three candidates offered their help, and have been delighted with the board’s support to date. They are doing a great job for shareholders.”

At the September 2016 Annual Meeting, Punakaiki Fund’s shareholders voted Mandy Simpson (CEO Cyber Toa, ex COO NZX) to be added to the board of directors, and Wiggs now considers that Punakaiki Fund has a highly experienced and well balanced board, especially considering the size of the company.

Lance Wiggs says, “The board works hard to protect shareholder interests, and we focus on risk management, valuation and Punakaiki Fund’s path to IPO.”

Punakaiki Fund more recently designated Bryan Hutchins as a non-independent director as interests associated with him held over 5% of the shares on issue prior to the latest offer.

More information

Lance Wiggs
021 526239

Punakaiki Fund Limited is raising capital through a Product Disclosure Statement (PDS).

The Governance section of the Punakaiki Fund website has background documents on Punakaiki Fund as well as bios for the directors.

Punakaiki Fund Extending 2016 Offer

Punakaiki Fund Limited is raising capital through a Product Disclosure Statement (PDS).

You can apply for shares Online with Punakaiki Fund, via Snowball Effect or by filling out and sending in the application form on the PDS.


We have kept relatively quiet at Punakaiki Fund while everyone has coped with the US election result and then the huge earthquake and aftershocks. It didn’t help that Ireland toppled the All Blacks – although that at least was well deserved.

Our offer was meant to close today Wednesday 30th November, but due to the events above we have just extended this to 20th December, 2016.

We will issuing shares soon to those who have invested already, and will be sharing news on any new investment commitments we make.

We currently have $1.44 million in applications, with $640,000 of that via  Snowball Effect and the remainder directly with Punakaiki Fund.

Anyone in New Zealand can invest. Australian wholesale investors can use the Australian Investment Memorandum aimed at them. Investors based elsewhere should get in touch directly.


Update about the earthquake

We have investments with several companies which have offices in Wellington and Christchurch, or with staff in those areas. All staff are safe. Some families were temporarily evacuated from low-lying areas during the tsunami threat, and several were unable to access their Wellington offices for a day or two.

The good news was that almost all of the Wellington based companies had prioritised offices with high earthquake ratings, and several had recently moved for that reason. The other company was about to move offices anyway. For us this was more evidence of why we like to invest with good people with strong values.

Meanwhile most companies were able to keep working – as remote working is now a part of doing business. The Christchurch, and Wellington, earthquakes over the last few years have nudged New Zealand based companies to be very proactive on handling things after a disaster and that preparation was evident.

I’ve visited both Wellington (twice) and Christchurch since the quakes. Christchurch seems largely unaffected, while Wellington’s infrastructure has certainly suffered and there are some frayed nerves. However life goes on, and it was good to see evidence in Wellington of the staunch just-get-on-with-it attitude that has served Christchurch so well.

Our continued best wishes to everyone in Wellington, Christchurch, Kaikoura and places in between.

Revenue Growth Continues

Almost all of the investments (i.e. the underlying businesses) are unaffected – with revenues mainly from offshore or with clients able to cope. One company, NZ Artesian Water, saw sales go up sharply, as they supplied increased demand from supermarkets in the South Island and even farmers in the Kaikoura region.  Others have continued to land important deals, with Melon Health in particular securing some strong clients.

Invest in Punakaiki Fund

Now that the dust has settled, the All Blacks and Black Caps are winning matches and the weather has improved it’s perhaps time to consider investing in the future of NZ – our high growth ecosystem. Please have a look at the PDS, and do consider joining the over 500 others who have already invested in this and previous rounds.

You can apply for shares Online with Punakaiki Fund, via Snowball Effect or by filling out and sending in the application form on the PDS.


Trump’s Plan and Potential Impacts on NZ

As this post mentions Punakaiki Fund Limited it could be construed as an advertisement for our public offer for New Zealand residents. So here is the link to the Product Disclosure Statement and you can invest online at Snowball Effect or directly with us.


The main reason for the post about Trump yesterday was to make the point that the US economy is strong, and, as a friend who is in Boston just messaged me, “People will get on with it” and that “they are relieved it is over.”

But I want to dive deeper into the potential impacts for New Zealand, which are not all that bad, jokes about US emigration to New Zealand aside.

The guiding presumption is that Trump will downplay some of his more radical rhetoric – especially his foreign policy statements implying he would use nuclear weapons. If that happens then all bets are off, but he is a lot smarter and will be better advised than his campaign would lead us to believe.

Trump’s 100 Day Plan

Trump’s Contract with the American Voter is a good read to determine what we are potentially in for.

Trump wants to propose a constitutional amendment for term limits for congress members – but that will be very hard to get past those congress people themselves. The perverse result would anyway be more power to the funders, rather than less.

He also wants to reduce the payroll to government, which every Republican president wants to do and few to none have ever achieved, as the chart below makes clear.

Source: www.mercatus.org
Source: http://www.mercatus.org

Obama is the only recent president to lower the number of public sector jobs.

Trump also wants to renegotiate or exit NAFTA, label China a currency manipulator (which will kick in trade barriers) and not sign the TPP. These are all doable – even NAFTA, which requires use a letter and six months notice to the two counter parties.

Trump will also remove environmental protections, unleash development of fossil fuel projects and cease climate change mitigation efforts.

He intends, and with a Republican Congress he is likely to, to lower the corporate tax rate to 15%, allow offshore funds to be repatriated at 10% tax and lower tax for rich people.  That will be an interesting trick considering the promise to increase spend on military and a need to not overspend too much. On the other hand increasing deficits when long term interest rates are so low is not silly at all.

Obamacare is for the chop, but neither Trump nor Republicans have any credible alternative yet, so expect turmoil and plans written by health care industry lobbyists to dominate. Trump also promises to make FDA drug approvals faster, which has good and bad implications.

Finally there are a number of anti-immigration measures, including the fabled wall, deporting 2 million people, tighter immigration checks and suspending immigration from “terror-prone regions.” These have a concerning police-state overtone.

There is more, including changing the balance of power in the Supreme Court, funding for non-public schools, tax deductions for childcare and eldercare and PPP programs to invest $1 trillion in infrastructure. That last one could be interesting – the USA’s transport infrastructure, for example, is long overdue for an overhaul.

It’s not all workable – but elements will certainly get through.

Beyond the 100 day plan Trump has incited racism, sexism and a general anti-education sentiment in the USA. It’s worrying to think about where this will end, and the USA certainly has unfinished business with slavery, the civil war and indigenous Americans.

Implications for New Zealand

The main potential implications for New Zealand, I see, are changes in the US economy, changes in trade barriers and climate change mitigation progress.  The other policies, while huge domestically in the US, do not really change things in New Zealand.

We do, however, have to be aware of and deal very quickly with the real issues that Trump and Brexit voters are concerned about, lest we fall in the same direction. That’s up to all of the political parties here, and National especially as the government. They are doing remarkably well for a 3rd term right of centre government, but more is required.

We are lucky to live in one of (if not the) best places in the world, and our politicians do care about social issues as well as driving business.

The US Economy

A change in the US economy would affect demand for imports, global investment returns and pricing of local investments.

The economy is due for some turmoil but overall Trump is a pro-business president. The policies he is pushing for, along with the Republican House and Senate, will defang or remove business oriented regulations, like environmental and safety mandates. Those taxes on business and high net worth individuals will fall and little to change in reality for Wall Street.

On the downside some sectors and people will suffer, in particular businesses exposed to elements of health care, the environmental sector and, more critically, people with low income who need government support. It’s  a strongly held belief by many Republicans n power that cutting taxes at the expense of social payments is a good, and as Trump’s budget is ludicrous something has to give.

Meanwhile other sectors will boom, including, at least temporarily, industry exposed to fossil fuels and those infrastructure projects.

The US Equities Markets will be fine in the short to medium term. Investors are realising this, and, despite the dismay at Trump’s election, share prices are rebounding.

Indeed it would be surprising for a billionaire to do much to cripple the global investment markets – as that’s the primary way for billionaires to make money. I would not be surprised to see some market volatility as the reality of Trump’s appointees and policies become clearer over the next few months. But despite his rhetoric I don’t expect to see a sabre-toothed regulator placed over Wall Street, and expect other “business friendly” policies to emerge. I put business friendly in quotes as defanging regulators is a short term move – and tends to foster crises later on.

Meanwhile the sheer size of the US economy is hard to grasp sometimes. Their GDP is over $18.565 Trillion, and increased by $509 billion in the last year. Let that sink in – the USA grew, at $509 billion, by 2.8 times the size of New Zealand’s own GDP last year. The US GDP itself is 100 times as big as New Zealand’s GDP and the market is bottomless for New Zealand exporters.

Exporters to the USA

A change in the trade barriers would affect New Zealand’s relative ability to export and get good margins for products and (to a lessor extent) services in the USA.

Companies marketing to the US do so because of that vast economy size size. The economy growth rate is a relatively trivial factor versus the addressable market.

What’s more important is the confidence that US buyers have. New Zealand companies exporting to the US often do so on a basis of delivering something that is better and cheaper, and it’s in tough and turbulent times when buyers are looking for alternatives. So if times get tough we can rely on the size of the US market and hungry buyers looking for alternatives, and it times are good – well then times are good.

Trump wants to tear up trade agreements, and that means we can expect to see  high tariffs on imports. While that’s going to affect New Zealand companies exporting to the USA, our existing trade agreements with the USA are not that great anyway. Given that we have a poorer deals than Canada, Mexico or even Australia then we will gain comparatively if they are broken and the stasis quo remains with New Zealand.

The TPP won’t pass, although we could be surprised. It was a poor trade agreement per se, and especially for us as it skewed sharply to the USA with, for example, chilling copyright provisions dictated by the MPAA and RIAA. Overall it seemed too complex to deliver the comparative advantage to each country – economic benefits that Adam Smith and David Ricardo rightly pointed 200 years or  more ago.

Perhaps we now have the opportunity to recast TPP a treaty for the remaining countries, removing the US-imposed clauses before that happens, and adding maybe some more protection for domestic workers in each country. New Zealand could even take the lead on this, redrafting a simplified agreement that leaves in the benefits granted to every other country but takes out those demanded by the USA.


Net net – I see that New Zealand exporters of physical goods may be affected, and especially commodity exporters. But commodity exporters have it coming, and they should at least be well diversified, but more importantly adding more value to their products. (Fonterra – please call Lewis Road Dairy and ask about their margins.) High value products are less affected by price and tariffs, so it’s another nudge to New Zealand exporters to move up the value chain. Companies selling mainly services, such as SaaS, should not be affected, as these are too easy to deliver from anywhere without barrier.

Early signs for one hardware exporter that I know well are good – their own distributors are very positive about the future, perhaps seeing less regulation and tax as driving their businesses forward faster.

Climate Change

Trump’s climate change denialism is real – he has been consistent on this for years. Coupled with a Republican House and Senate, many of whom are who are underwritten by the Koch brothers, we can see that regression is certain.

The impact on New Zealand is the global impact – the loss of momentum to lower emissions and the acceleration of sea rise, extreme weather events and loss of habitat.

On the positive side, however, it’s increasingly clear that the switch from fossil fuels is becoming realistic without subsidies – especially if subsidies to the older industries were removed. Tesla and Wrightspeed are showing the way to a electric future that delivers better products (like faster cars), cheaper costs and reduced emissions. The price of solar generated power is falling fast, and once installed they are there forever. States, like California, meanwhile can and will keep their own incentives for lower emission approaches.

Here in New Zealand there is little we can do about the climate change policies of the USA – except for leadership by example. We do not have the funds to invest in the next Tesla, but we do have the ability to nudge, as Vector is doing, to a better future.

Impact on New Zealand based High Growth companies 

The high growth New Zealand based companies that are doing business in the USA, and I am not constraining this to those with Punakaiki Fund investment, are succeeding because they are providing disruptive services. A disruptive product or service does well in a disrupted society, as buyers are looking for change. Pushpay provides alternative easy payment mechanisms, Melon Health lowers the cost to insurers paying for delivering health care, Vend makes it easy for stores to set up and expand and Xero changes the way the accounts are done, while reducing costs.

There will be category winners and losers, absolutely, with Orion Health’s share price affected today, but overall high growth companies are far more concerned about the next sale than the overall economy.

They are, like every company, potentially affected by exchange rates. But it works both ways, as if the USD falls versus the Kiwi then we will probably see other currencies rise to compensate. Companies will also see benefit in reduced costs, especially for high cost things like Amazon Web Services (AWS).

Above all this shows, as Brexit did, that it pays to diversify your markets. Punakaiki Fund’s portfolio is only abut 15% exposed to the US market, so we are not expecting any material change. And for those bashing Xero’s relatively slow uptake in the USA – the same benefit applies to them.

However so far we’ve seen little negative change in currency rates or market indicators, but I feel for the people of the USA. This post is about the effect on business here in New Zealand, but I worry deeply about the effects of the divisive campaign led by Trump.


As this post mentions Punakaiki Fund Limited it could be construed as an advertisement for our public offer for New Zealand residents. So here is the link to the Product Disclosure Statement and you can invest online at Snowball Effect or directly with us.


10 Reasons for Hope in a Trump-led USA

It’s hard to see much hope for the world now, but let’s look for some brightness in the despair of the prospect of a Trump presidency.

10: The entertainment will not stop – especially when Trump gets his Twitter account back.

9: Trump clearly doesn’t like hard work, so don’t expect him to drive through major changes in legislation that require that.

8: The Republicans in the House and Senate have huge differences of opinions with Trump – so expect some issues will never be resolved.

7: At heart Trump is really a liberal on many social issues, so if he has a conscience don’t expect too much action on LGBT rights or abortion. Sadly he doesn’t seem to have a conscience.

6: It’s going to be a lot cheaper to travel to and buy things from the USA, just like the UK at the moment.

5: The US economy is vast, irrepressible and resilient – it can and will keep steaming ahead, despite what happens in Washington. Wait for the stock markets to drop 40% then invest. Or maybe 60%.

4:  Gun sales will fall, as they only rise with Democratic presidents, especially black ones.

3: Expect an abundance of news about the clueless and constantly churning staff working for and placed by Trump.

2: Fox News and their ilk will have nobody else to blame for their manufactured woes.

1: New Zealand tourism will boom – although we may have to enforce immigration law for US visitors.