Review could shake up KiwiSaver provider market

Minter Ellison partner Jeremy Muir. Photo / HOS

Minter Ellison partner Jeremy Muir predicts the continuing inflows of new money into KiwiSaver - more than $245 million in March alone - will stimulate more jockeying for position among fund managers.

"This is likely to mean more consolidation, such as Fisher Funds' acquisition of Tower's KiwiSaver scheme, and the launch of new products.

"The upcoming review of the Default Provider schemes also has the potential to shake up the market if the number and identity of the providers changes.

"Given its popularity, many people will be familiar with current KiwiSaver disclosure requirements. The Financial Markets Conduct Act, once enacted, and the related Financial Markets Conduct Regulations, will change those disclosure requirements," says Dan Jones of Russell McVeagh. "Like other managed funds, KiwiSaver schemes will be required to have a product disclosure statement, with other material being available on the register, and - as under the recently introduced KiwiSaver (Periodic Disclosure) Regulations 2013 - will be required to make periodic disclosures to investors on matters such as returns, fees, and asset allocation."

These new quarterly and annual disclosure requirements will provide readily comparable information to both investors and other market participants, although will inevitably come at the cost of significant extra work for fund managers.

Muir says that his firm is talking to their KiwiSaver clients about their processes for approving these reports, as they will be subject to some (although not all) of the same "advertising" rules as investment statements and other promotional materials.

Other potential changes facing market participants lie in expanding the investment base of KiwiSaver to access alternative assets, including private equity and venture capital.

Says Muir: "Given the long term investment horizons of schemes and investors, there is much to be said for a diversified portfolio which includes more illiquid, high risk but (hopefully) higher growth asset classes. This does, however, require consideration of practical issues around the illiquidity of such investments - and the undesirability of limiting KiwiSaver investors ability to switch between schemes."