The methodology of the 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.
Duncan Bridgeman, University of Auckland's Susan St John and Philanthropy NZ C
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The methodology of the 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. Some, however, don’t even know how wealthy they are themselves.
Rich List valuer Neville Glaser says while an accurate valuation of private wealth is nigh on impossible, the laws of probability help to get the valuation within a believable range.
Here are some techniques we use:
Some valuations are easy because the wealth is visible and in listed shares that can easily be valued (for example, Sir Stephen Tindall, Sir Michael Hill).
Where the wealth was created in a private company that was subsequently sold, the value of the family is established at the date of sale and then incrementally increased from year to year if the family appears to conserve their wealth. If they launch 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 the 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, check what the profit margin percentage is on similar listed companies. From that we calculate annual profit. We apply an industry PE (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 the bank’s 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 go dormant. Exceptions are the old developers with a track record of decades of successful development, who will have real capital invested in their business.
Property investors: Again, property investors only become truly wealthy if they have outlived several cycles and repeatedly bought into depressed markets (Sir Robert Jones). New wealth in the property market is usually highly leveraged with bank debt.
Overseas wealth: Seriously wealthy New Zealanders who made good overseas, like Graeme Hart, Stephen Jennings, and the Chandler brothers tend to appear in overseas rich lists such as Forbes and the UK Sunday Times. The Forbes valuations have consistently seemed overstated but can be used as a benchmark nonetheless. With these people, movement in the currency can make a big difference.
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