By Susan Edmunds of RNZ
Some Australian investors may be facing the loss of their investments after the failure of a superannuation provider, but KiwiSaver members are being reassured that the situation is different here.
Australian media have reported that up to A$450 million ($493m) may have been lost by the First Guardian Master Fund, which went into liquidation early this year.
Co-director David Anderson was reported to be accused of transferring funds into his own bank account.
David Callanan, general manager of corporate trustee services at Public Trust, one of the supervisors of New Zealand’s KiwiSaver schemes, said there were different protections for KiwiSaver members, which should prevent such a scenario.
Providers are subject to oversight from a supervisor, who can also choose to appoint a third-party custodian or act as custodian themselves.
“I think we’ve got a more effective regulatory regime. It’s set up really well to protect KiwiSaver members and investors,” Callanan said.
He said the supervisor was “effectively a trustee”.
“We’re in place to ensure that KiwiSaver providers are doing the right thing for investors. If there was an issue with a KiwiSaver provider then the supervisor would be able to step in and take control back and come up with a solution.”
Callanan said that could involve appointing another manager if necessary.
“We have the power to step in and to take control back in the interests of those investors.”
He said that because there were a limited number of independent supervisors, they were closely regulated by the Financial Markets Authority.
“In Australia, there are hundreds of responsible entities who play that role.”
Callanan said if a fund manager was failing, it would not be able to access investor funds.
“That’s another area that in those scenarios that I’ve seen in Australia hasn’t worked. You’ve got fund managers just dipping into investor monies, you know, to go and buy a Lamborghini or whatever they feel like on a whim.
“That just couldn’t happen here because we’ve got independent custodians and again, Public Trust is an independent custodian for a number of KiwiSaver providers, and that can give investors confidence.”
He said there was also a strong conflict-of-interest regime in place.
“Even for fund managers who might undertake what is called a related-party transaction ... the Financial Markets Conduct Act stipulates the process they have to go through to work with their supervisor to get that transaction across the line.”
But that does not mean you cannot lose money in KiwiSaver.
Callanan said there was always the risk that investments could go wrong and financial markets might not perform as expected.
“But if you’re with a KiwiSaver provider in New Zealand, you can have confidence that there’s a mechanism in place in the supervisors that if something was to go wrong with that manager, the supervisor would step in and stop you falling down the metaphorical cliff.
“There’s always the possibility that someone makes a silly financial decision or you could pick an investment that’s really bad. My advice would be to avoid a situation where you have all your eggs in one basket.”
He said that could only happen with the KiwiSaver schemes that allow people to choose their own investments.
“Most KiwiSaver providers are offering these diversified products and you can be really confident you’ve going to get a good outcome because you’ve spread your risk in an appropriate way.”
Financial Markets Authority (FMA) director of markets, investors and reporting John Horner said the law prescribed the segregation of duties in relation to managed investment schemes.
“Generally, while the manager of the scheme is responsible for investment decisions, the custodian is responsible for holding and safeguarding the scheme property – segregation of legal ownership – and for keeping records of the scheme property – segregation of functions. Supervisors licensed by the FMA are responsible for custody. Depending on the scheme’s governing documents, a supervisor may appoint another appropriate independent person as custodian.
“MIS [managed investment scheme] managers and supervisors are obliged to act with care, diligence and skill. MIS managers are expected to maintain strong capital positions, professional indemnity insurance, parent company guarantees or other, similar arrangements. Managers are also required to notify the supervisor if they are, or are likely to become, insolvent. The supervisor is responsible for monitoring the manager’s performance of its functions and obligations, as well as its financial position.
“In the event that the fund manager becomes insolvent or is otherwise unable to continue operations, the supervisor has the power to appoint a temporary manager to ensure the continued management and operation of the fund until a permanent replacement is appointed.”
– RNZ