Pearlfisher Capital Ltd has entered a joint venture with First NZ Capital Group Ltd which opens the smaller private property investment & development lender to new business and will add a new direction to the country’s largest full service investment bank.
Pearlfisher, started by Tony Abraham & Jarrod Bruce in 2009, has worked with a pool of high net worth investors to fund residential subdivisions, townhouse & highrise apartment projects and suburban retail developments.
It’s an asset class First NZ Capital has left alone as it’s concentrated on advisory wealth management.
First NZ Capital’s head of investment banking, Sam Ricketts, said yesterday the company saw non-bank property financing as an area of opportunities & growth, both for its own investment and as an additional offering to its institutional & high net worth client base: “The non-bank property finance market overseas is quite sophisticated & well developed,” he said.
Mr Bruce believed it was the first time in New Zealand an institution had made this step into direct non-bank property financing.
Pearlfisher has sat between that inhouse investment style and the New Zealand finance company sector model of raising money from the public through debentures, which was destroyed in the global financial crisis in 2008.
The company offers first & second mortgages, using funds from a small pool of wealthy investors. Unlike finance companies that attract funds and then have to use them or face paying high returns on low-interest bank deposits, and where investors don’t see where their money is being placed, Pearlfisher lines up a project then goes to its investors.
“We originate opportunities then decide whether we want to pursue them, and match with investors. The investors look at the specifics of that transaction. We don’t just dole out cash, but in theory we also don’t have a cap.”
Mr Ricketts said First NZ Capital had invested in the Pearlfisher business: “The benefit of that is the alignment of interest. In most transactions we’d like to think Pearlfisher would be putting their capital in as well.”
First NZ Capital had seen interest in property investment grow among high net worth individuals, and also among institutions, and Mr Bruce some of that was evident through the advent of family offices, which he saw as opportunistic. By comparison, “We’re trying to grow a long-term business.”
First NZ Capital introduces a large support base to Pearlfisher. Mr Ricketts: “I’ve got 20 guys in my investment banking team, plus the global strategic alliance with Credit Suisse, in place since 2002.”
Mr Bruce said the timing of the Pearlfisher-FNZ joint venture was good, but it wasn’t based on taking advantage of immediate opportunities. Mr Ricketts said First NZ Capital also saw long-term opportunities in the non-bank lending sector.
One early outcome should be an increase in availability of first mortgage funding. Mr Abraham: “Under the current structure, if we got a deal for $20-25 million, we’d probably struggle to place it. Most of our loans are in the $1-10 million range, but we’ll start to see larger first mortgage opportunities.”
2 reasons for that have arisen. One is the capital constraints the Australian banks are facing and the other is the tightening of credit criteria.
For investors, syndication has attracted increasingly large sums, but on a different timeframe. Syndicate managers look at investors placing their money for several years, whereas for Pearlfisher’s investors the average term is 12 months: “They recycle their capital. We’re also not selling $50,000 parcels, but $1-2 million chunks. For a $4 million deal, we’d take it from one person.”
Mr Abraham said the difference in investor markets came down primarily to market nous: “Our investors actually understand the risk profile, which has been critical to how we run our business – not everyone understands the space we play in.”
First NZ Capital will add independent governance to the mix. Mr Ricketts has joined Pearlfisher’s board and Sean Keane has been appointed as its independent chair. Mr Keane’s 30 years in financial markets locally & internationally included being managing director of global money market funding & short-term interest rate trading in Asia & the Pacific for Credit Suisse before he returned to New Zealand in 2008.
He founded Triple T Consulting Ltd, which has close ties to Credit Suisse & First NZ Capital, joined First NZ’s board in 2012 as a non-executive director, is deputy chair of NZX-listed Eroad Ltd and is a director of Foundation Life (NZ) Ltd.
The content of this article has been tweaked shortly after initial publication, correcting some of my terminology in particular.