Ian Macoun’s firm Pinnacle Investment Management beats the market more than 80 per cent of the time. Learn how to invest from the icon himself. Video / Carson Bluck
KiwiSaver members should be allowed to opt out of early withdrawals, such as using their funds to buy a house, to invest in more illiquid assets like private businesses, infrastructure, property, forestry and farming.
That’s the view formed by the Centre for Sustainable Finance, made up of majorbanks, law and accounting firms, who shared concerns over the currently limited investment options of KiwiSaver.
“Leading investors globally see the value of private asset investments as part of diversified portfolios,” Centre chairwoman Bridget Coates wrote in a statement.
“Both the Government and KiwiSaver providers can take further action to ensure KiwiSaver members benefit from a greater range of options than they currently have.”
Less than 2 per cent ($188 million) of the $97 billion invested in the KiwiSaver scheme was allocated to unlisted shares and non-financial assets, compared with 18 per cent of Australian equivalents, the group said in a statement.
Most KiwiSaver funds were invested in listed stocks available on public markets, or financial assets like cash and bonds.
The Superannuation Fund, a member of the group, was increasing its own investment exposure to private assets, with 27 per cent of its total holdings involved in alternatives, infrastructure, property, private equity, rural and timber, in June last year.
Some KiwiSaver firms did offer private asset options, however, Coates said most were discouraged from doing it because of limitations the scheme placed on liquidity, fees and the lack of expertise within KiwiSaver firms.
KiwiSaver firms needed high liquidity in their funds, so that if any member wished to withdraw their funds to buy a first home or retire, or move their funds to another provider, they could.
Firms were also required to frequently price the assets they were invested in.
That could be done daily with public stocks, however private businesses were valued far less frequently, typically once a quarter or once a year.
Supervisor of the scheme, the Financial Markets Authority, was also placing pressure on the fees KiwiSaver firms charged, ensuring they were not unreasonable.
Coates wanted the FMA to recognise that higher fees charged to manage private assets were legitimate, especially if the assets were overseas.
“This is about creating investment opportunities while mobilising private capital to help build a more resilient and sustainable future for all New Zealanders,” she said.
Bridget Coates is chairwoman of Toitū Tahua: Centre for Sustainable Finance. Photo / Supplied
Chapman Tripp partner Tim Williams, who co-authored the finding, said KiwiSaver did not provide enough choice for investment risk and returns.
“Private asset investment won’t suit every investor, nor will it necessarily be something all KiwiSaver providers offer, but some investment choices present in the broader New Zealand financial markets and internationally, are not being provided through current KiwiSaver scheme options.”
The finding followed the Centre’s paper published last year titled Investing in Private Assets, which first outlined the issue publicly and the likely reasons for it.
It recommended the FMA and Ministry for Business, Innovation and Employment investigate introducing a notice period for members wanting to switch providers.
“Setting a minimum notice period, especially for funds involving less-liquid assets, would allow providers to offer funds that truly differentiate themselves from others,” it read.
It highlighted other barriers like pressure from KiwiSaver firm boards to keep things the same, the difficulty of finding private assets to purchase and knowing the price to pay for them.
“The general lack of data and disclosures makes it more challenging for private assets to be discovered or pass the investment assessment process,” the paper read.
Because firms largely lacked knowledge about private assets, it was suggested a repository of information about private assets be formed.
Understanding among members was low too.
“Many KiwiSaver members’ financial knowledge is still limited, not to mention understanding and consideration of funds involving private assets” the paper read.
The Centre was established by banks ANZ, ASB, BNZ, Westpac, HSBC, law firms Chapman Tripp and MinterEllisonRuddWatts, accounting firms Deloitte, EY, KPMG and PwC and philanthropic organisations The Tindall Foundation and Whakatupu Aotearoa Foundation.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
