IWI IKA - supporting iwi fisheries

Mixed Asset Portfolio or Asset Diversification

At some point the Directors of an AHC or its MIO representatives will need to consider the question of whether to restrict their business to fisheries only investments, or whether they would be willing to broaden their investment base into non-fisheries investments such as properties, equities etc...  Diversification of investment is about spreading risk across a range of investments.  The theory is that should one investment do badly other investment classes, being different in nature, will continue to perform.  Simply put, diversification is about not having all your eggs in one basket.

The idea in theory may be good but achieving a diversified portfolio can be more challenging for fisheries AHCs.  The fisheries settlement assets held by AHCs are bound by statutory provisions that make divestment, or sale, of fisheries assets very difficult.  Therefore, diversification of an AHC's investments is only achievable by increasing non-fisheries investments. Table 1 below illustrates a gradual growth in non fisheres investments over a three year period. The effect of this would be an increase in the non fisheries investments and a corresponding decrease in fisheries investments, as a percentage relative to toal investments.  A decision to diversify in this manner will impact the AHC dividend to the MIO because an AHC will need to use a portion of its profits to purchase the non-fisheries investments unless it has a sufficient finance source.

Table 1: 3 - Year Divesification Plan

Investment Type 2010 Value ($) Percentage 2011 value ($) Percentage 2012 value ($) Percentage
Fisheries Investment $3,000,000 100% $3,100,000 86.1% $3,200,000 80.0%
Non Fisheries
(eg equity & property)
0 0 $500,000 13.9% $800,000 20.0%
Total $3,000,000 100% $3,600,000 100% $4,000,000 100%

For iwi that currently hold fisheries settlement assets only, they will need to consider whether to pursue diversification now or to wait for the settlement of their wider Treaty claims.  There is no right or wrong answer as it really does depend on the circumstances and objectives of each iwi.  Some iwi have achieved investment diversification through their wider iwi group of entities.  In this sense the fisheries AHC is simply one of those entities and fisheries settlement assets just one of a range of assets.

Options for Diversification

  • Use a percentage of annual profits to buy non-fisheries investments
  • Sell or rationalise some of the existing fisheries assets in accordance with a well developed strategic plan.  This should have the effect of freeing up cash that you can invest elsewhere. However do not forget the restrictions that apply to the sale of fisheries settlement assets.
  • Use your fisheries settlement assets as collateral to raise finance for investment elsewhere.

Figure 1

Pie chart: AFL income Shares 55% Quota 30% Cash 15%Figure 1 shows a typical asset mix for a fishery AHC with a large iwi population as opposed to coastline based inshore quota.  The AFL Income Shares having the highest value, followed by quota and then cash.  In terms of AHCs with small iwi populations and large coastline, quota will form the majority of their asset mix by value.

 

This article by Maru Samuels