Sharemarket regulator reviews structure in light of SuperLife’s active investments

Sharemarket operator NZX is reviewing its governance structures to ensure conflicts of interest - or the perception they exist - do not arise from growth in the company's funds management business.

The Wellington-based firm last month announced the completion of its up to $35 million acquisition of New Zealand fund manager SuperLife, which it says will help transform its Smartshares division into the country's leading passive funds manager and provider of exchange traded funds (ETFs).

NZX is the local sharemarket's frontline regulator, carrying out activities such as market surveillance, investigations, disciplinary action and the granting of waivers.

An NZX spokeswoman said a potential conflict of interest could arise in an event where NZX Regulation was asked for a waiver from, or began an investigation into, an issuer in which SuperLife's members or Smartshares unit holders had a stake. "Such potential conflicts are already managed within NZX today through the conflicts management structures and processes," she said.

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The recent acquisition has been pitched as an avenue for growing the passive funds management business.

However, SuperLife holds some active investments in NZX-listed firms, including a 19.8 per cent stake in Wellington Drive Technologies and a 19.2 per cent stake in Energy Mad.

NZX chief executive Tim Bennett said the company was concerned about perceived conflicts, particularly with issuers in which SuperLife controlled a significant holding.

As its funds management business expanded, its governance structure was being reviewed to avoid actual and perceived conflicts of interest, he said.

Bennett said SuperLife investments including the Wellington Drive stake continued to be managed by MCA, an entity owned by SuperLife directors Michael Chamberlain and Owen Nash.

After the acquisition, Chamberlain and Nash remained directors of SuperLife. Chamberlain, SuperLife's founder, also joined NZX's management team.

Bennett said the philosophy behind ETFs, which track stock exchange indexes, was to have small, passive stakes in a large number of companies.

"Part of the strategy of that business is to move into ETFs or passive funds completely over time."

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Asked if SuperLife would dispose of its active holdings, such as Wellington Drive, Bennett said the fund management business had been built up over 10 years with "a particular investment philosophy".

"People are members of those [SuperLife] schemes because of that investment philosophy or partly because of that investment philosophy so we don't want to disadvantage any members through a transition," he said. "It will be up to the investment manager to decide how to do that over time. We don't have any involvement in that."

Last month it was announced that former Commerce Minister Simon Power would step down from NZX's board because of potential conflicts of interest between his role as general manager of Westpac's private wealth business and the exchange's growth in passive funds management.