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Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
3 mins to read

Calculating the list


Thu, 28 Jul 2011

It’s important to remember the NBR Rich List is not a guide to the country’s overall wealth but only to those we deem worthy of interest as examples of business achievement and investment success. There are candidates whose wealth is kept so private that it is impossible to calculate. We pride ourselves on providing the best list possible from publicly available information. We are well aware that some people store their wealth overseas and/or in well-protected trusts.
The methodology of the NBR Rich List has evolved over the years and many on the list are now more co-operative about commenting on their affairs and their valuations. We contact them all to offer them the opportunity to comment and contribute.
While an accurate valuation of private wealth is nigh on impossible, the laws of probability help us to get the valuation within a believable range and for which we can show our methods.
Some valuations are easy because the wealth is visible and listed shares can easily be valued.

Where the wealth was created in a private company that was subsequently sold, the value of the NBR Rich Lister is established at the date of sale, and then incrementally increased from year to year if the wealth appears to be conserved. If the NBR Rich Lister launches into risky ventures that aren’t paying off, the wealth can be incrementally reduced from date of sale.

If the wealth is in a large private company, still owned by a family, and no value has ever been placed on the business, some detective work is needed. First we look for benchmarks like any turnover figures available and check what the profit margin percentage is on similar listed companies. From that calculate annual profit. Apply an industry price-earnings ratio to profit to get value of the business. A reasonable after-tax profit margin for a large building group is 5%.

Property development: The starting point for property developers is that they use banks’ money and make a small margin and virtually all of them will eventually be caught on the wrong side of a development and go bust or dormant. Exceptions are the older developers with a track record of decades of successful development, who will have real capital invested in their business.
Property investors: They only become truly wealthy if they have outlived several cycles and repeatedly bought into depressed markets. New wealth in the property market is leveraged to the hilt, with assets essentially belonging to the banks. 

Overseas wealth: Seriously wealthy New Zealanders who made good overseas, like Graeme Hart, Stephen Jennings, Richard and Christopher Chandler and Sir Ron Brierley, tend to appear in overseas rich lists such as Forbes and the UK Sunday Times. Overseas valuations often seem overstated to us but we do use the overseas lists as a benchmark. With these people, movement in currencies can make a big difference. 

Old money versus new money: One key indicator of wealth is when the wealth was created. Old money that is passed from generation to generation carries little debt and can be valued close to asset value. New money, particularly property wealth, is usually created on the back of a lot of debt and these assets have to be heavily discounted.  

Where the subject confirms his or her own wealth: Feedback, letters and comments from subjects who claim higher values are taken seriously but more credence is given to conservative people not known for talking up their wealth. The other extreme is people who hate being on the list and talk down their own wealth, sometimes with the help of a letter from their lawyer.

And a reminder …
It might not follow the traditional rules of mathematics but we have continued with the method used last year to re-index the NBR Rich List. When we have multiple entries at one level, for example two people or families in fifth equal position, we will still count the next wealthiest as the next numerical entry, for example in that case number six.
Our reasoning is they are still No 6 on the list – there just happen to be more than one person in each position ahead of them.
Any updates or comments from NBR Rich Listers are posted throughout the year online at www.nbr.co.nz/richlist.

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Calculating the list
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