To say Brian Gaynor is excited about the Mighty River sale is an understatement. Of his last five Herald columns, two have been about how great it will be, and two have been about how awful NZ Power is. His other media appearances have been in a similar vein: Mighty River = good, NZ Power = bad.
As with First NZ Capital, Gaynor doesn’t care if you do actually keep on paying too much for power or not. But he wants potential investors in Mighty River Power not to worry about what a correction in electricity prices will do to the company’s value. It’s in his financial interests that investors aren’t scared off Mighty River, and that’s the root of his opposition to NZ Power.
So, what skin has Gaynor got in the game?
Well, Gaynor works as executive director and headfor an outfit called Milford Asset Management – they manage investments for people with $300,000+ to invest and have pretty successful Kiwisaver and PIE setups. Gaynor heads their investments sections. The company notes that its workers own shares in the firm – Gaynor’s the largest shareholder, owning 24% of Milford.
Here’s how they describe their approach to investment:
That’s interesting because it’s the direct opposite approach to what he recommended for ‘mum and dad’ investors, in this column on Mighty River. In fact, he wants the Government to make a big song and dance about the looters’ bonus to keep mum and dad in if they buy.
How does an outfit with a quick in and out approach win if mum and dad investors are persuaded to ignore NZ Power and put heaps of money into Mighty River, then hold on to those shares?
Well, the more investors there are to start with, the more over-subscribed the float will be. That means large pension funds and the like here and in Aussie that are required by their rules to hold a certain amount of their assets in blue-chip shares won’t be able to get all the shares that they need in their pre-float allocations. After the float, they will come in and buy up to get to those levels (that’s why there’s always a wee surge after these floats).
If ‘mum and dad’ are convinced by, say, a kindly looking gent with a grey beard that the future of Mighty River is secure and they shouldn’t worry about NZ Power, then they’ll buy more shares and hang on to them harder. That, in turn, forces the post-float share price surge higher as those funds try to acquire their mandated investment levels.
Who wins then? Well, an ‘active portfolio manager’ that doesn’t follow a “buy and hold” approach, of course. Maybe one that the same kindly looking white-bearded gent works for. Presumably, what will happen is Milford Investments will have its allocated slice of the Mighty River shares at the float and, not looking to hold them long, will wait until the post-float bounce seems to be hitting its peak, and sell out.
Basically, it seems like Gaynor’s engaged in a version of pump and dump. Reassuring investors to increase demand before dumping Milford’s own shares quickly post-float.
A guy who works for a business that will profit if you believe his advice that NZ Power won’t work and that power prices, and the excessive profits they create, are here to stay, because that advice will encourage you to buy and hold Mighty River shares while his business does precisely the opposite, is the last guy that you want to be listening to about NZ Power. Especially when he makes no mention of his business’s plans around Mighty River or its policy of only holding stocks short-term.
Ultimately, Gaynor doesn’t care if NZ Power comes in. Milford Asset Management will be long out of the Mighty River stock by then. Opposing NZ Power for Gaynor makes financial sense because it means more short-term profits for Milford Asset Management.