Less than 2% of the $97 billion in total value of KiwiSaver funds in New Zealand are invested in unlisted shares, far less than retirement savings scheme providers in other jurisdictions and out of step with leading investors globally, which typically invest in a diverse range of asset classes. By comparison, 18% of Australian superfunds are invested in private assets. The majority of KiwiSaver investors have long investment horizons (20 years +), but they have little option to take advantage of their long investment horizon by way of investing in private markets.
This means many New Zealanders aren’t benefitting from investment options that can provide potentially higher financial returns and may also bring long-term positive environmental, social, and economic outcomes.
In 2023 we published recommendations for KiwiSaver managers, and government, to reduce the barriers preventing KiwiSaver funds to invest in private assets. The paper was developed by an investor-led technical working group comprised of CSF partners ANZ, ASB, BNZ, as well as Harbour Asset Management, Milford Asset Management, Te Rūnanga o Ngāi Tahu, NZ Growth Capital Partners, Pathfinder, Tauhara North No.2 Trust and Foundation North. PwC New Zealand provided secretariat support to the group.
The Ministry for Business, Innovation and Employment is consulting on capital markets settings that enable KiwiSaver investment in private assets.
There are four proposals in the document, all of which relate to management of KiwiSaver funds:
• Make it easier for KiwiSaver providers to use management tools (such as ‘side pocketing’) that will help them invest in private assets
• Ensure that the fund valuation requirements KiwiSaver providers must meet support private asset investment
• Improve private asset visibility in KiwiSaver providers’ public disclosure requirements by amending asset categories
• Consider changes to the way the total fees that KiwiSaver providers are required to report is calculated
Read and respond to the consultation document here.
In 2023 the Centre for Sustainable Finance: Toitū Tahua (CSF) published its Investing in Private Assets Recommendation Paper which provides recommendations for KiwiSaver managers, and government, to reduce the barriers preventing KiwiSaver funds to invest in private assets. The paper was developed by an investor-led technical working group comprised of CSF partners ANZ, ASB, BNZ, as well as Harbour Asset Management, Milford Asset Management, Te Rūnanga o Ngāi Tahu, NZ Growth Capital Partners, Pathfinder, Tauhara North No.2 Trust and Foundation North. PwC New Zealand provided secretariat support to the group.
The key barriers and challenges identified by the technical working group are:
The key barriers and challenges identified by the technical working group are:
CSF has recently commissioned leading law firms, Chapman Tripp and MinterEllisonRuddWatts, to provide a joint legal opinion on the legislative and regulatory barriers that may be contributing to KiwiSaver’s low rates of investment into private assets.
A number of KiwiSaver Investment managers already invest in private assets. And while there is no explicit legal barrier to this activity, the legal opinion identifies three key points that actively discourage a large proportion of providers:
While there are no explicit legal barriers to this activity, the opinion of CSF partners MinterEllisonRuddWatts and Chapman Tripp is that there are legislative and regulatory impediments contributing to KiwiSaver’s low rates of investment into private assets.
Their joint legal opinion identifies three key points that actively discourage a large proportion of providers:
The proposed changes outlined in the opinion include tackling “liquidity bias” by enabling investors to opt out of account portability and early withdrawal entitlements, allowing for the creation of “private asset” funds with long term investment horizons; establishing a more efficient means of accommodating and adopting long-term asset valuation methodologies into KiwiSaver scheme trust deeds; and greater FMA recognition that higher fees are legitimately associated with private assets including clarification of the requirement that those fees not be “unreasonable.”
The proposed changes outlined in the opinion include tackling “liquidity bias” by enabling investors to opt out of account portability and early withdrawal entitlements, allowing for the creation of “private asset” funds with long term investment horizons; establishing a more efficient means of accommodating and adopting long-term asset valuation methodologies into KiwiSaver scheme trust deeds; and greater FMA recognition that higher fees are legitimately associated with private assets including clarification of the requirement that those fees not be “unreasonable.”
Jo Kelly, our Chief Executive, MinterEllisonRuddWatts and Chapman Tripp discuss and answer questions on the findings and recommendations in the legal opinion in this recording of our CSF Partners’ information session.
29 February 2024
Business Desk
29 February 2024
Good Returns
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