The Value of Relationships: Investing With PMG
PMG might be one of New Zealand’s largest and most established property fund managers, with over half a billion dollars’ worth of property and funds under management on behalf of thousands of investors, but each of these investors have very individual goals and situations, from a seed for intergenerational wealth to larger portfolio diversification. The connection between the scale of this portfolio and the individual needs of its investors is formed by PMG’s Investor Relationships Managers, led by Matt McHardy. We talk to Matt about the personal side of investing, the future of the New Zealand economy and the power of long-term thinking.
Can you describe your role? What is a “head of investor relationships”?
Our clients range from mum and dad investors, through to family office clients, Iwi, charitable community organisations and trusts. All of them have the same issues around where they earn a yield in this low interest rate environment. Our job is to help them digest that, understand it in a factual sense and put that into the context of the quarter economic market and property cycles.
There’s a big learning, development and knowledge transfer set within my role as well. How do I ensure that I take what I know and help the balance of my team to understand that as well, so they can best help their own clients and deliver the consistent, reliable customer service expectation that we set at PMG?
In addition to that, I am on the senior management team at PMG and we discuss and deliver setting capital raising strategies and customer strategies, etc. We help steer acquisitions and divestments for our five funds, as well as distribution channels. I also look at how we get product to the market in an ethical, legal and moral way. Trust is everything in our business.
In terms of that knowledge transfer, what are some of the fundamentals that you pass on to your team?
Recruitment’s a big part of it. First of all, you’ve got to make sure you’ve got the right people at the table.
Secondly, there’s no better way of learning than on the tools. In terms of transferring knowledge, we do a lot of co-meetings with clients. I’ll run meetings side by side with my team, to a point, then once they’re confident I’ll leave them and give them autonomy. You can put people in front of LinkedIn Learning or various courses, but in my view, there’s no substitute for time in the chair, so we do a lot of shadowing at PMG.
Has the role changed over the years, are investors looking for a different kind of relationship now?
I think the reason why PMG investors come to us is because every business is selling something and at PMG we sell trust. Ultimately, without trust, people won’t invest with you. I think in this day and age people have a pretty good radar for spotting insincerity and dishonesty.
There are two questions an investor needs to ask. Can you trust the people that are sitting in front of you? But performance, and performance over time, is another element.
If they are referred from a friend or a family, that’s straightforward and almost naturally implied. The salespeople, the investment relationship managers of today certainly are a bit different.
They’re a bit more down to earth and I think you need to have a really intricate knowledge of what you’re doing, as well as experience.
A big part of that, and a reason why our clients invest with us, is most PMG employees have got a pretty large exposure to PMG’s funds within our own personal investment portfolios. While I don’t own any commercial property outright, in terms of my total investments, approximately 90% of my total portfolio is invested there. So I have skin in the game alongside our investors; we share the same risk and returns as our clients.
We seem to have found ourselves as a bit of a safe haven with a lot of overseas interest in terms of investment. Are you noticing that from your perspective?
There’s offshore money flowing into New Zealand and that’s happening pretty readily in the commercial property sector. I’d expect interest, if not actual investment, has probably picked up post-COVID-19 lockdown here, on the back of the fact that our economy is up and running versus the rest of the world.
That money wants to be invested in productive areas, not areas where people are unable to travel or work. Pre-COVID, foreign investment in New Zealand commercial property was already significant.
At the moment, we’re dealing with clients all around the traps who are trying to get money out of other areas around the globe. These are traditionally expats that are living offshore now, but they absolutely want to get their money somewhere where it is productive and safe.
Are you optimistic about the future of commercial property?
Where do we work from, make, store and sell stuff, if we don’t have commercial real estate? If you look at some of our big tenants, like Tui Garden Products, if not for industrial real estate like that, where will Tui manufacture their product and how do they distribute it efficiently? You can easily understand through that example that there is always going to be a need for industrial real estate.
The office sector has changing dynamics though. There was a movement towards working from home and flexible working already – all COVID has done is sped that transition up. Is it all or nothing though? Absolutely not. In PMG’s own office, we’ve got probably 90-95% of our staff in the office every day.
Will the nature of the office tenancy change over time? Probably. Offices can’t be sterile anymore, with four walls and a water cooler in the corner. You’ve got to be offering great amenities and thinking quite critically around the actual fit out for an office. Like including breakout areas, soundproof rooms or pods, putting greens or pool tables. All that, which tech firms have done, has got to become mainstream because we’re competing with the home office now.
To boil that all down, I do think that there is a really lively and prosperous future for the office sector. Commercial property is all about providing productive environments for businesses to thrive. It will just evolve. You’ve got to be proactive, rather than reactive, and see the trends ahead of time and start positioning for that.
Can you talk about the level of financial education that we have in this country?
Generally speaking, I think financial literacy and education has a long way to go in New Zealand. If you think back to school, outside of math, English, science, economics and accounting, there was nothing really around the practicalities of managing money, investing and how to create wealth for oneself. I think that’s a major area for improvement.
It is getting better though, with technology and platforms like Banqer, which are hugely instrumental in upskilling both primary and high school students, and through the likes of Sharesies making investment much more accessible than what was previously possible to all New Zealanders.
The challenge is that we need to educate parents as well, and bring them along for the journey. PMG have the PMG Generation Fund, with a current minimum investment of a 1000 units at $1 per unit, so it’s a really accessible way to get parents and children engaged together in investing. We’ve got retired clients that have put their grandkids into it, and we’ve got great grandchildren, fourth generation PMG investors, in there now too.
What do you think is often a driving force or a motivation behind a lot of your investors? Is it really about having a good retirement? Or is it about creating this kind of intergenerational foundation?
I’d like to say it’s the latter, but I suspect the initial hook is the yield. The purpose of picking up the phone or wanting to talk to us is because PMG has been able to demonstrate over time an ability to consistently deliver cash returns at around 5.5-7%* per annum, paid monthly or quarterly, and some growth at around 1-3% per annum.
I think that the older generations have a responsibility to retain capital where possible and live off the income as much as they can, while maintaining a lifestyle they’re entitled to. But, where possible, also maintain that capital for future generations and build structures to allow that to happen. I genuinely believe that they need to recognise that it simply will be much harder for future generations to create wealth for themselves and they have a duty to their children and grandchildren to help where they can. Education has a big part to play in that and we wouldn’t want one generation undoing all the hard work of the generations before them.
We’ve been starting to look more closely at our supply chains because of Covid. Do you see any changes here that could change the use of commercial property?
The e-commerce environment has grown significantly. The online retail sales as a percentage of total sales for retail product globally is about 12-12.5%. It’s forecasted to lift to 15% by 2022 and some forecasters are suggesting it could go as high as 25% or more in the next 5-10 years.
I’ll look at that and think, if more and more people are making online purchasing decisions, what does that mean in terms of the retail footprint for bricks and mortar stores in New Zealand? Distribution and warehousing property are probably going to become more and more prevalent.
That helps to shape PMG’s view for where we buy real estate. What are we buying? What are the thematics that are driving performance out of that? From that angle – industrial property, warehousing logistics, distribution space – demand for that in price is probably going to keep pushing up.
But no, I don’t think we’re going to see a massive shift in terms of goods, which are usually made offshore are now being made onshore. Fundamentally, there are significant cost elements to manufacturing some products in New Zealand and while other countries can make things cheaper, we will continue to import. While consumer buyer behaviour is changing to buy local, it’s not going to change all that much.
If you put your investor hat on, where’s the potential for the New Zealand economy in general?
I think technology adoption needs to speed up. In terms of companies adopting it to set themselves apart from their peers and ensuring that they’re at the forefront of what’s happening, there’s some really smart initiatives out there that we could be using.
Using PMG as an example, when people come in to invest with us, how can we use virtual reality to show them the buildings that they’re investing in and do a walk through. From a farming perspective, if you’re in the primary sector there is some negative sentiment around environmental sustainability. But many farmers are doing a lot in that space and they do care for the land because it’s ultimately the land that’s given them their livelihoods and created value for them and their families. How can you use technology to show people and the Government that we’re actively participating in that space and doing a good job?
If you’re a business, big or small, if you don’t have a significant online presence and you’re not providing the very basic tools and accessibility to your clients already, then you’ve probably got a long way to go. And in my view, if you fail to adopt certain technologies and continuously challenge what can be used within your business to improve interaction with customers, then you’re going to be left behind.
Can you describe the culture at PMG? Do you feel like what you are doing is having an intergenerational and wider social impact as well?
We have a fantastic culture. We’re family-owned and every person that works for PMG is an investor. We have an employee shareholder programme, which is quite unique for a small business. All these people that work for us are essentially given shares in the business. There’s that real pride of ownership and that helps to ensure that we’re all singing to the same tune, that everybody’s stepping in the same direction.
Our purpose is to create value and security for people through property, and help New Zealanders achieve financial freedom. The directors ensure we’re still upholding those value sets that they instilled on us all those years ago.
I love being here. It’s like turning up to work with your mates every day and the clients feel it.
To find out more about PMG, visit their website.
Click here to read our interview with PMG CEO, Scott McKenzie.