KiwiSaver investments mired in perplexity

It may surprise you to learn that, courtesy of KiwiSaver, you are an investor in the Brazilian stock market.

You may be equally unaware you are a shareholder in tobacco company Philip Morris or oil conglomerate Exxon Mobil.

Yet these are common securities held by fund managers on behalf of the 1.3 million New Zealanders who have so far joined the Government's popular superannuation scheme.

The average Kiwi saver would not have a clue where their hard-earned savings are invested, and finding out is not straightforward.

There is no industry standard for disclosing to investors what assets their KiwiSaver fund holds at any one time.

As KiwiSaver approaches its third birthday, the Securities Commission has only in the past month issued guidelines to providers on disclosure and distribution.

It says providers must "disclose the investment objectives and policy ... together with a statement of the means by which those objectives and policies may be changed".

It goes on to say that it "does not believe that the requirements of the regulations are met by statements of investment policies so broad and all encompassing as to give no meaningful indication of the actual investment activities that will be undertaken".

Which pretty much leaves the scene wide open to interpretation. However transparency has become a hot topic in the wake of KiwiSaver provider Peter Huljich's admission he used his own funds to top up his firm's scheme.

Measures to improve the governance, disclosure and transparency of the managed funds industry, including KiwiSaver, were already part of last year's Capital Markets Taskforce recommendations, but following the Huljich situation the Government has announced tighter reporting requirements will be fast-tracked.

Until these new regulations come into force the KiwiSaver industry is free to communicate with its investors as it sees fit.

Sam Stubbs, head of investments for default provider Tower, is a champion of complete transparency.

The industry has hidden behind complex language for too long, he says.

"Investors are not going to trust their provider or trust the industry until they understand," he says.

"And they're not going to understand until such time as it's explained in language that they can understand."

Tower is moving to a global standard for fund reporting, which will involve its publishing regular key investor information documents (Kiids).

At present if you wanted to know what was in your Tower KiwiPlan conservative fund you would have to ask, but "we would certainly tell you what you were invested in, down to the last equity", Stubbs says.

Currently the annual report lists the top 50 or 100 securities funds held in each asset class.

The regular Kiids will list the top 10, and provide information on performance and fees.

New Zealand has been behind the rest of the world on disclosure. If finance companies had had to provide Kiids, things would have been very different, Stubbs says.

"We don't have to reinvent the wheel here, there are very well-established procedures internationally for this."

Stubbs is also an advocate for the funds management industry being subject to the same continuous-disclosure regime as publicly listed companies.

"If it makes sense for listed shares why shouldn't it make sense for funds?" he says.

"If something material happens, you should be making a public announcement. Investors should not have to wait to read about it in the annual report."

Peter Verhaart, general manager of rival default provider AXA Global Investors, takes a different view.

People want one-page summaries, he says. "As a fund manager you want to tell people everything, but if you do that then it just swamps them with information and they don't read any of it."

AXA is working through financial advisers, he says. "What we're doing now is arming the advisers with more information, because they are getting the queries coming through from clients saying that they want more detail in terms of what's underlying [the funds]."

AXA has acquired financial advisory businesses such as Gould Wealth Management, which has clients who have suffered from failed investments and are keen to find out more.

There is a limit to how much a fund manager can put out to the public - for example on its website - because it constitutes advertising.

That requires sign-off from the directors and the involvement of trustees and lawyers.

ASB Group Investments' head of wholesale distribution, Greg McAllister, believes that is an excuse.

However ASB, another default provider, has a different attitude again to communicating with its investors.

Its KiwiSaver scheme is designed to be simple and ASB is a passive manager, he says - meaning its funds are invested according to a combination of market indices and managed by investment managers.

Its global shares, for example, parallel the MSCI World Index.

Investors can Google the MSCI index at any time, McAllister says, and see what shares are on it.

That means disclosure to customers can be kept simple. "For me, it would strike me that that's enough," he says.

"What I'm trying to be conscious about is giving customers enough information in their letterboxes but make sure everything else is readily available. I'm not sure they'd actually want all that spam mail any more than I'd want to keep producing it."

But some in the non-KiwiSaver funds management industry think the regulators should get tough.

Goldman Henry Capital Management believes in telling its investors precisely where their money is invested, managing director Brian Henry says. It publishes its results every day, good or bad.

Henry is critical of the Securities Commission's belated guidelines.

"Three years down the track you should have had a far better document than that," he says. "What we need is a detailed directive on what you must disclose.

"We literally need a quarterly format report that KiwiSaver people should fill out which actually names every asset right down to the bottom, every asset movement and as best as possible gives value."

New Zealand Funds chief investment officer Michael Lang says there are commercial sensitivities around disclosing an entire portfolio, but the compromise could be to provide full disclosure every three or six months.

"In New Zealand, the balance between the magic the managers weave and having the right to know what they're buying on your behalf needs to tip towards [the investor] knowing."

He would like to see stricter disclosure requirements for funds which hold private assets.

It's one thing to report quarterly when your portfolio is made up of publicly listed assets, but another when you have illiquid private investments, he says.