Simplicity is investing in building affordable homes. From left: Shane and Anna Brealey of NZ Living, Simplicity CEO Sam Stubbs and COO Andrew Lance. Photo / Supplied
Simplicity is investing in building affordable homes. From left: Shane and Anna Brealey of NZ Living, Simplicity CEO Sam Stubbs and COO Andrew Lance. Photo / Supplied
KiwiSaver managers will have $295 billion for investment in New Zealand over the next 25 years and all eyes should now be on using this “astronomical” opportunity to plug our infrastructure funding gap, says one of them.
Sam Stubbs, managing director of KiwiSaver investment fund manager Simplicity says he’s donefresh calculations assuming KiwiSaver managers continue to have 30% of their investments in New Zealand and no changes to the scheme itself.
“For every dollar that comes in, about 30c gets invested in New Zealand now. If you assumed nothing changed for the next 25 years, so no compulsion, no increase in contribution rates, just where we are now … it means KiwiSaver managers would have $295b to invest in the next 25 years.
“It’s an astronomical amount of money and the power of compounding interest now.
Stubbs, whose team is “banging on doors” to wake up country and community leaders to the KiwiSaver investment potential, says only three asset classes could absorb that amount of money.
Simplicity founder and managing director Sam Stubbs.
The most obvious is infrastructure, another is housing and arguably the recapitalisation of one or two banks.
“But even if you had two banks the size of the ANZ, that’s only $40b of the $295b.”
“What everybody is missing in the infrastructure picture is the opportunity to fund everything domestically. We could arguably plug our entire infrastructure gap without a dollar of foreign money.”
He’s advocating foreign building expertise but public/KiwiSaver/iwi partnerships to fund them.
Projects could include a second Auckland harbour bridge or a new power station.
Politicians, local and national, “don’t get it yet” because they haven’t been informed of the size of the opportunity or that New Zealand is about to enter “a period of economic renaissance”, Stubbs says.
“This is what happened in Australia and what happened in Singapore … the pension funds got huge and the only thing they could fund was major infrastructure.
“KiwiSaver is the single biggest pool of money we will have. I’m prepared to bet the biggest infrastructure investors in New Zealand in 30 years will be KiwiSaver managers, not foreign owners.”
Stubbs says domestically funded new infrastructure would avoid a lot of the current risks in major infrastructure builds.
“On of the biggest curses of infrastructure PPPs (public/private partnerships) has been the return expectations of investors has been far too high, particularly if it’s offshore money.
KiwiSaver is the single biggest pool of money we will have. I’m prepared to bet the biggest infrastructure investors in New Zealand in 30 years will be KiwiSaver managers, not foreign owners.
“There’s risk, there’s currency risk, there’s political risk. But if it’s a local KiwiSaver fund there’s no currency risk and very little political risk because it’s owned by millions of New Zealanders, and it’s very unlikely a government’s going to change the rules and damage KiwiSaver returns.
“The whole thing’s depoliticised and the surety of cash flows means you should accept the lower returns (infrastructure traditionally offer).
“We have an opportunity here - this is a unique pool of money – to be able to fund infrastructure at return rates a government and councils will be happy about.”
Also, Kiwis would own the assets long-term, something which foreign investors don’t usually want to do.
“We would be partnering with foreign construction companies. We don’t expect Kiwis will have the money to build the assets necessarily – they would want a higher return (for that). But we would want to own them forever. So you could expect Kiwis to have the funds to buy the operating assets or newly-developed assets and basically manage them for a reasonable return for a very long period of time.”
Stubbs says he’s not criticising the country’s leaders for “not getting” the opportunity offered by KiwiSaver funds.
“I think you need to be managing it to see it happen every day. At the moment I’m coming into the office and there’ll be another $5 million. You have to be experiencing it every day to realise this is going to happen.
“They’ve never been in this situation before. New Zealanders have never saved so much money. We’re about to enter a period of economic renaissance, we just don’t realise it yet.”
But there’s hope the penny is dropping.
In May, the Government said more than $120b was invested in KiwiSaver (at that time) but most of the funds were parked offshore in foreign stock exchanges, generating little good for New Zealand.
At the time, KiwiSaver providers were awaiting the outcome and recommendations of a Ministry of Business, Innovation and Employment consultation with the sector.
Come August, they were still waiting.
Commerce Minister Scott Simpson’s office would only say “the Government will have more to say in the coming months”.
