Multi-trillion-dollar investment firm BlackRock well and truly landed in Aotearoa in the past month with a $2b green energy investment and plans to open an office on the shaky isles.
The New York-headquartered firm made its big splash in early August with the announcement of the private climate investment fund, which aims to back projects and businesses with an end goal of transitioning New Zealand to 100 percent renewable energy by 2030.
The business has had a New Zealand presence of sorts for about a decade now, first with AMP and, as of 2021, as ASB’s chief investment and portfolio management function.
The ASB link means it manages more than $20b of New Zealanders’ money and is responsible for the second-largest KiwiSaver provider.
Despite being responsible for tens of billions of dollars in New Zealand, opening a beachhead office in New Zealand feels like a major step in such a small country, with BlackRock managing funds worth US$8.6 trillion.
Its scale completely eclipses New Zealand’s total household net worth of NZ$2.207 trillion (roughly US$1.4t).
BlackRock registered an entity with the New Zealand Companies Office in late August and a spokesperson told Newsroom it intended to have an office up and running by the of the year.
The company has a lot of money to spend in a short timeframe in New Zealand with its ambitious climate fund, a heck of a lot of retirement money to manage, as well as offering eight exchange-traded funds alongside the NZX’s Smartshares business.
While it didn’t express interest in any further New Zealand investment opportunities in answering Newsroom’s questions, its Australasian chief executive Andrew Landman has previously told the NZ Herald the climate fund was just one part of future opportunities in New Zealand.
Despite a clear need for staff on the ground here, the idea of BlackRock extending its reach into this corner of the world will be cause for concern for the more conspiracy-minded, with the firm a fixture of global world order conspiracies due to its size and early adoption and promotion of environmental, social and governance investing principles.
With such a major move underway, how is BlackRock thinking about New Zealand?
The investment firm likes to deal in five “mega forces”: artificial intelligence, the low-carbon transition, geopolitical fragmenting, an aging population and a reworking of the financial sector.
The low-carbon transition mega force is the most obvious link to its New Zealand operations, but the firm’s fund management activities mean it also takes a more granular view on our economy.
Speaking at a mid-year outlook media briefing at the firm’s Sydney office, BlackRock Australasia head of multi-asset portfolio solutions David Griffith said the company was treating New Zealand as a bellwether for how other economies might react to high inflation.
The Reserve Bank of New Zealand was one of the first central banks to begin aggressively hiking interest rates when it made its first move in November 2021 with inflation at 4.9 percent.
Griffith compared that to the US Fed, which started its rate hikes in March 2022.
“Inflation peaked in New Zealand [at] about 7.3 percent and it’s only come down to about 6 percent, whereas you compare that to the US economy, inflation peaked at about 9 percent and is now coming closer to where the central bank’s upper end of the inflation expectations are.”
The old normal
Griffith said this played into a wider trend BlackRock’s investment team was seeing around a new normal, or perhaps an old normal, as interest rates reverted to the higher levels seen before the global financial crisis.
“It’s a bit of a regime shift in terms of the way central banks are thinking and they’ll be less willing to come to the party to cut rates.”
This makes the period of low interest rates seen between the GFC and the emergence of unacceptable levels of inflation during the pandemic an anomaly rather than the norm.
This has seen interest rate-sensitive sectors such as the housing market slow down and overall economic growth is expected to stall.
Griffith said this meant its New Zealand investment activities were “modestly cautious” around the outlook for equities and growth assets, favouring emerging market equities over New Zealand and Australian stocks.
“If you look at price earnings, particularly on the New Zealand equity market, it is quite highly valued or overvalued at 30 times price earnings, compared to the US around 20 times and here in Australia, it’s about 15 times.
“So we just see better value in global equities, and emerging market equities in particular.”
As far as fixed assets go, BlackRock’s Australasian portfolios hold positions in New Zealand and US inflationary bonds and have a small allocation to gold.
New Zealand’s close trade relationship with China could be another cause for concern for local investors, but Griffith said the Chinese economy was part of the emerging market theme BlackRock was working with.
He said while China’s growth was slowing from the highs of the past, an expected 3 percent growth going forward was still quite an attractive story when other trading partners were facing a flatlined or near-zero GDP growth.
“China’s in the luxurious position of not having such an inflation problem as there is elsewhere and they have the ability to stimulate the economy, which will be good for the export market of New Zealand so there’s upside optionality there.”
ASB Bank funded Newsroom’s travel to attend BlackRock’s mid-year media briefing.