The Government plans to ease rules for KiwiSaver investments in unlisted assets. Pictured is a wind farm under construction at Te Pohue. Photo / Warren Buckland
The Government plans to ease rules for KiwiSaver investments in unlisted assets. Pictured is a wind farm under construction at Te Pohue. Photo / Warren Buckland
The Government proposes loosening rules to allow more KiwiSaver investment in unlisted assets like infrastructure.
This could increase domestic investment from 3% to nearly $20 billion, boosting New Zealand’s economy.
Experts say this would diversify portfolios, reduce currency risk and potentially offer higher returns.
The country’s infrastructure funding gap may soon be improved by the injection of KiwiSaver money.
The Government is proposing to loosen the rules and make it easier for KiwiSaver funds to invest more in unlisted assets such as road, rail and renewable energy projects, and productive private businesses.
Former Ministerof Commerce and Consumer Affairs Andrew Bayly said more than $120 billion was invested in KiwiSaver. Most of these funds are parked offshore in foreign stock exchanges, generating little good for New Zealand’s economy.
Similarly, only around 3% is invested in unlisted assets, compared with around 16% by Australian superannuation funds.
Matching the Australian levels would mean that KiwiSaver schemes would have nearly $20b invested in New Zealand-domiciled private assets.
“Leveraging the money held in KiwiSaver to invest in unlisted assets, particularly domestic ones – such as transport projects, renewable energy generation or large-scale housing developments – would be a win-win,” Bayly said.
“For unlisted Kiwi businesses, it means more capital to innovate and grow. For Kiwi investors, exposure to different asset classes means risk diversification and potentially higher returns.”
Former Minister of Commerce and Consumer Affairs Andrew Bayly. Photo / Mark Mitchell
“We know New Zealand urgently needs to address our falling productivity and failing infrastructure. Healthy, vibrant capital markets offer huge potential to address these issues and support competition and innovation for the benefit of hard-working Kiwis.”
KiwiSaver providers are waiting for the outcome of recent consultation. The Ministry of Business, Innovation and Employment (MBIE) issued a discussion document titled “Enabling KiwiSaver investment in private assets” in December.
The MBIE recommendations from the consultation to Scott Simpson, the new Commerce and Consumer Affairs Minister, have yet to be published.
Generally, fund managers would favour more investment in private assets as a form of diversification for portfolios that could attract higher returns.
Sam Stubbs, managing director of Simplicity New Zealand, said in the past investing KiwiSaver money in infrastructure has been considered an excuse rather than a reason.
Remove the excuse and ultimately more money will end up in infrastructure projects, Stubbs said.
He said the cost of funding infrastructure by KiwiSaver funds would be cheaper than by foreign investment – for instance, there is no currency risk with the funding in New Zealand dollars, and foreign investors look for more returns.
“The normal capitalist rules would need to apply in a way that is fair for KiwiSaver members.
“The investment would be long-term and the members would expect higher returns for the risks they are taking.
“Kiwis owning infrastructure we use would depoliticise the stigma of foreign money owning assets.”
Ashley Gardyne, chief investment officer with Fisher Funds, said investing in private assets was a natural evolution for KiwiSaver. Keeping the investment level at 2-3% is too low and will move up through time.
“We have seen ACC looking to invest in infrastructure projects and it can be KiwiSaver space on a case-by-case basis. Australia has developed an ecosystem for putting together public-private partnerships and we don’t have many examples in New Zealand.
“If we can get the returns framework and risk management right, then we should see more KiwiSaver flowing into private assets.”
Gardyne said an expected return for investing in core infrastructure such as regulated electricity and water utilities would be 8-10%. The expected return would increase to 12-14% for investing in a new project that involves construction, taking into account the development risk.
“You are tying up money for a long period of time. It’s not like the sharemarket where you can sell your stake at any point in time,” Gardyne said.
