New Zealand ranked lowest in a study of managed funds in 16 countries carried out by investment researcher Morningstar.
The study measured the experiences of managed fund investors, with the aim of identifying best practice in funds management from the countries in North America, Europe and Asia in which Morningstar
operates.
This country was rated D-, while the United States topped the list with an A rating, followed by China with a B+. Australia was rated 11th with a C.
Chris Douglas, Morningstar manager of Fund Analysis, said the report was "not having a go" at those people working in the New Zealand funds management business.
There were many "world class" fund managers in New Zealand, but the report looked more at regulation, disclosure and transparency around these investments.
Morningstar's D- mark for New Zealand did not mean money invested in these funds was any more at risk or that the country's KiwiSaver managers were any less professional than their overseas counterparts.
The quality of New Zealand fund managers was good and there was a diverse range of products available to invest in.
The report looked at transparency of these investments - what was disclosed about the people running the fund and the details of what it had invested in.
In many countries fund managers named the people looking after the money, when they started work, if they had during the year.
NZ funds were not good at disclosing their fees structures, allowing them to be easily compared with other funds.
"It is about global best practice and what kind of system we have in New Zealand," said Douglas.
Many fund managers around the world told investors what companies they had invested in - sometimes with a three month delay. This meant that when funds went down in value for instance, investors could more easily understand why. Investors might then be less likely to pull their money out.
Douglas said recent research into New Zealand managed funds had found some very good performances, coming at a time when many were being badly hit by the tough investment environment.
Brian Henry, Chairman of Goldman Henry Capital Management, said the Morningstar report was fair. His fund, which invested largely in the United States, was used to dealing with the higher level of transparency seen from that country's fund managers.
There was a particlar problem around working out fees charged by the New Zealand fund managers.
"Transparency in New Zealand is virtually zero," said Henry."It is so opaque you cannot see what is coing on."
There was no reason why funds could not show investors the value of their investments updated daily, he said. The industry needed to restore confidence in itself, and greater disclosure and transparency was a good way of doing this.
Mark Brighouse, managing director of Brook Asset Management said many New Zealand fund management firms are already doing the things that Morningstar suggests such as separation of asset custody and disclosure of portfolio holdings.
"The D minus rating for New Zealand's taxation regime seems harsh considering that investors in PIE compliant funds pay no capital gains tax," said Brighouse. "Further incentives to invest for the long term would be desirable and addressing the tax on income within KiwiSaver would be an effective way to achieve this."
"Transparency in prospectuses and reports, investor protection, and taxation were the main areas where New Zealand did not rank well," Morningstar said.
"On transparency, disclosure of portfolio holdings was cited as one of the most important areas needing improvement."
New Zealand and Australia were the only countries in the 16-country study which did not need full portfolio holdings disclosure on a regular basis.
The study also argued the Securities Commission in this country was insufficiently resourced, Morningstar said.
New Zealand also scored poorly in taxation, due mainly to a comparative lack of tax incentives for long term investing.
But this country ranked well in distribution choice, transparency in sales and media, and fees and expenses.
The study noted that entry and exit fees for New Zealand funds were moderate relative to other countries.
Expense ratios for share and cash funds were in line with those of other countries, but expense ratios for New Zealand fixed income funds were higher than those of other countries.
Morningstar researchers evaluated and scored countries in six categories -- investor protection, prospectuses and investors' reports, transparency in sales practices and the media, fees and expenses, taxation, and distribution practices.
Questions and answers were weighted to give greater importance to high priority issues, mainly surrounding fees and transparency.
How they ranked:
United States: A
China: B+
Italy: B
Japan: B
Netherlands: B
Taiwan: B
Canada: B-
France: C+
Switzerland: C+
United Kingdom: C+
Australia: C
Singapore: C
Germany: C-
Hong Kong: C-
Spain: D
New Zealand: D-
- CHRIS DANIELS/NZPA
Read the full report here.
