Taking Stock 26 March 2026

Chris Lee Writes:

THE late Brian Gaynor, founder of Milford Asset Management, had many objectives when he set up Milford more than 30 years ago.

Gaynor, who arrived from Ireland in the 1970s, had worked as a researcher for Jardens and had strong views on the changing expectations of fund managers. He had watched the dreadful lack of ambition and poor culture at the likes of AMP, National Mutual, and the National Provident Fund, where investors' returns were not prioritised.

At Jardens, Gaynor was not a gun researcher, analyst or stockpicker. He was good but not top gun.

But Brian Gaynor had some special qualities. Firstly, he was much nearer to socialism than Trumpism. 

Secondly, he could see that investors needed better returns and better communication than the self-focused institutional fund managers were offering. 

Thirdly, he could see the value to equity investors of buying shares in the fund manager.

He was keen to list on the NZX his Milford company, enabling investors to share his vision.

Wow, would he be impressed today with the value Milford has created. It now manages nearer $30 billion than $20 billion, with annual revenue of probably $500 million. If listed, it would probably have a market capitalisation of many billions.

The listing never happened. A certain Bob Jones was the obstacle to listing. 

Gaynor had seen through Jones when he was an analyst and researcher.

He recorded his views in newspaper articles he contributed, an endeavour at which he excelled, combining real knowledge, a willingness to tackle awkward subjects, a good use of research and an ability to write well.

Between Jarden’s employment and his full-time commitment to Milford, Gaynor had worked in Parliament as an advisor to David Lange.

As noted above, Brian Gaynor was more attracted to the left than the right, and he had developed a loathing of Robert Muldoon, the accountant who led the National Party for a decade.

Gaynor had watched Labour grossly overspend its election funds, leaving a nasty overdraft of more than $2 million to address. Jones arrived and negotiated his knighthood and some of the wording of his citation (services to women) in return for $2 million.

To Jones' horror, and Gaynor's discomfort, Gaynor was standing beside Lange when the cheque was handed to Lange.

That led to two of Gaynor’s strongest convictions. Muldoon and Jones were the worst New Zealanders he had met, he said, and the $2 million cash for knighthood was the most blatant corruption he had observed.

After Gaynor witnessed this he wrote some fairly powerful newspaper columns, analysing Jones. Jones sued him and the NZ Herald. The paper solved the debate, probably by agreeing to run Jones’ columns for some period. Promising kind treatment to solve defamation was then a common tactic, welcomed by Jones.

Jones used the platform to deride Gaynor and undermine his credibility as a future public company founder. 

To my great regret, Gaynor kept Milford off the bourse. Any original shareholder would have had outstanding returns. There is no need to recall the returns for those who stuck with Jones.

These memories would now be drowned by the huge success of Milford, a business model Gaynor scripted, and one that has been achieved with almost none of the sort of controversy surrounding the likes of Money Managers or Fisher Funds.

While Milford has been flourishing, the whole world has watched investors move tens of trillions of investor money into index funds, actively managed funds, pension funds, private equity funds, and, more recently, private credit funds.

The number of people who resist the fees and the exclusion from decision-making is relatively small.

Many undistinguished people in financial markets creep into fund manager roles and, with bonuses, become extremely rich. The owners of those funds also become extremely powerful. They seek to use the power of their investors' money to underwrite (for handsome fees), to block votes at annual meetings on governance, and even to vote on business strategies.

I have yet to understand why people with no obvious or wide business experience can be assumed to have the power to dictate policies or strategies.

My preference is that they simply sell out when they dislike strategies, policies or people.

But my views are not relevant.

Today the likes of Milford with, say, a 3% holding in a company like Mainfreight, will have a platform for their views that often sway corporate outcomes.

Index funds, which by definition simply replicate the composition of an index, almost never employ wise, experienced business people. Their machinery simply apes an index, as set out in the mandates when the fund is formed.

So you can get remarkable anomalies.

Last week we saw such an anomaly. Several institutions in recent months had bought shares in Santana Minerals, having calculated potentially high returns, while calculating incremental reductions in risk.

Earlier this month, Santana was advised its company had been admitted to the ASX 300. Many funds, and especially index funds, have to copy the ASX 300.

The average turnover of Santana shares over the past two years has been around a million shares per day, with the highest turnover being around five million. Last Friday, March 20, was the day when the many funds were forced to buy Santana shares, many of those being funds that simply copy the index.

On Friday, 24 million shares were bought, and a further 10 million were being sought when the market closed.

It does not require much imagination to see how the new buyers were being gamed. Every market participant would have known that Santana was likely to enter the ASX 300.

I would bet a good pair of my favourite pyjamas that had Brian Gaynor not died some few years ago, tragically from a brain tumour, he would have stocked up on shares to sell to the index funds a long time ago.

_ _ _ _ _ _ _ _ _ _

OVER the last two years, Taking Stock has chipped away at the danger of investing in private credit funds.

My logic was that much of the lending was to borrowers whose requests for funds were rejected by banks. Much of the lending was on second-tier securities. The lender had no meaningful capital buffer, so losses quickly fell on the investor.

The extraordinary indebtedness of American corporates seemed a sign of heightened risk.

The private credit funds are not subject to the same level (as banks) of scrutiny. Transparency is low. Bad debt provisioning is erratic.

To me, private credit, like opening a second bottle of tawny port after a big meal, was most unwise.

We now read that both Goldman Sachs and JP Morgan Chase are offering their clients an opportunity to buy instruments that produce very high returns if private credit loans default. 

In other words you can bet on private credit failure. 

It is nicely ironic that Goldman Sachs and JP Morgan Chase both sell off loans to private credit managers.

Ah, the great American dream. You can bet on anything.

_ _ _ _ _ _ _ _ _ _

NEW Zealanders may have their own "dreams". Perhaps they fantasise that a New Zealand company will offer to buy back Kraft Heinz Watties.

The Hastings-based food processor Watties has been an icon. Established in the 1930s by Jim Wattie, the business was certainly the key to Hawke's Bay wealth, along with the two major freezing works, when I lived in Hastings in the 1960s.

Hawke’s Bay was rich, with no unemployment, the wealth based on wool, lamb, beef and horticultural prices. Watties would contract pip and stone fruit growers, processing the vast majority of production. It employed thousands of people, directly and indirectly. 

Times changed.

More than 30 years ago the great Irish winger, Tony O'Reilly, then the CEO of Heinz, bought Watties. Later Warren Buffett's Kraft company bought Heinz. The global company might have seen Watties as a bit more than a rounding error, in terms of its profit contribution.

Global giants have rarely been great long-term owners of companies in New Zealand, many of them (Vestys, Borthwicks as examples) finding it easier to quit NZ than close better-located subsidiaries, National Bank of NZ being another example.

More than a year ago Kraft Heinz Watties told Hawke's Bay stone fruit growers there would be no more long-term contracts. Night follows day.

How much longer before Kraft Heinz Watties looks for a buyer? Would a New Zealand buyer emerge?

Note that in recent times Kraft Heinz Watties has been obtaining the bulk of its tomatoes from Asia and shipping them here. Spain and Greece dump superb tinned peaches and apricots here at extremely competitive prices.

Is it a dream that a new version of Jim Wattie will emerge, to avoid all the issues that seem certain to follow a Kraft Heinz Watties closure?

_ _ _ _ _ _ _ _ _ _

Mercury Energy 

Mercury Energy has set its interest rate for its 7-year Senior Green bond at 5.17%, with payment due no later than 31 March 2026.

Clients interested in this bond are welcome to contact us as we have a small supply remaining.

Travel

13 April – Taupo – Johnny Lee

14 April – Hamilton – Johnny Lee

15 April – Tauranga – Johnny Lee

16 April – Lower Hutt – David Colman

17 April – Napier – Johnny Lee

Chris Lee

Chris Lee & Partners Ltd