A new KiwiSaver scheme will invest some of its money in hedge funds - an area typically seen as too complicated for the average small investor - in a bid to stand out in the already crowded market.
Generate KiwiSaver, which registered its prospectus on Friday, will be run by Generate Investment Management - a company headed up by former Huljich Wealth Management investment manager Henry Tongue and whose directors include former Fisher Funds chief investment officer Warren Couillault. Tongue said the scheme would invest into 10 to 15 fund managers around the world which were focused on making money in both up and down markets.
Tongue said its strategy would spread investment risk across a number of managers, whose strategies would lead to investment decisions that were of a higher quality as the managers had scale not matched in New Zealand.
"They have more resources that allow them to employ more high-end investment professionals," he said.
"For example, one of our selected funds has eight portfolio managers and 40 research analysts."
Tongue said some of the funds its invested into would be hedge funds.
Hedge funds have typically been the domain of the investing wealthy. Many were hit during the global financial crisis and there have since been moves to bring greater regulation to the industry.
Tongue said all of its underlying investment funds would be highly regulated.
"The right type of hedge fund is perfect for long-term investment by the retail investor as it reduces downside risk and volatility which over time will enhance risk-adjusted returns."
However, Tongue admitted investing via other fund managers came at a cost. "The fees are higher because we have to pay for the underlying managers."
He believed Generate's fees remained competitive with other KiwiSaver providers.
The new scheme enters a market with more than 50 schemes in operation.
The bulk of the money in KiwiSaver has gone to bank providers who have strong sales forces and the six default schemes which were selected by the Government as a holding place for new members who do not pick their own scheme.
"The banks have been very successful with their default schemes and distribution networks.
"We believe if we can provide clients with a better all-round scheme, then over time, if we can communicate our message, members will hopefully join our scheme."
The scheme will offer conservative, growth and focused growth options.