KiwiSaver investing in private assets

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 benefiting from investment options that can provide potentially higher financial returns and may also bring long-term positive environmental, social, and economic outcomes.

Investing in Private Assets - CSF Recommendations Paper

In 2023 the Centre for Sustainable Finance: Toitū Tahua (CSF) published its Investing in Private Assets Recommendations 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:

  1. Policy certainty and regulatory clarity

  2. KiwiSaver managers' capacity and capability

  3. Organisational and market challenges posed by private assets (for example, increased costs)

  4. KiwiSaver members’ expectation and financial literacy

What’s stopping KiwiSaver investment in private assets? - Legal Opinion

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:

  1. The need for sufficient liquidity to meet account portability obligations and member withdrawal entitlements;

  2. The requirement for daily pricing of assets; and

  3. Lack of clarity around the requirement for fees not to 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.”

“Leading investors globally see the value of private asset investments as part of diverse portfolios. 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. This is about creating investment opportunities while mobilising private capital to help build a more resilient and sustainable future for all New Zealanders.”

 — Bridget Coates, Chair, Centre for Sustainable Finance

 

“To drive economic growth based on a more sustainable model, the range of assets that investors can access in Aotearoa needs to broaden. CSF was able to pull together an impressive expert group to debate the challenges and opportunities of investing in potentially illiquid private assets. CSF marshalled some healthily diverse viewpoints into a coherent approach to the topic that can inform policy-making and market appetite at the same time.”

 — Rob Everett, Chief Executive, NZ Growth Capital Partners

“At a time when New Zealand needs large amounts of capital to build sustainable infrastructure, it seems unfortunate that some of the KiwiSaver regulatory settings are having the unintended consequence of discouraging some providers from investing in private assets. As a result, New Zealand trails well behind other countries, such as Australia, both in the proportion of retirement savings invested in private assets, and the returns earned by those retirement savings.”

 — Lloyd Kavanagh, co-author of the legal opinion and Partner at MinterEllisonRuddWatts

 “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, narrowing the risk and return diversification choice available in the KiwiSaver scheme universe, including the opportunity to provide needed capital for New Zealand’s development. It is worthwhile exploring why this is, and whether improvements can be made.”

 — Tim Williams, co-author of the legal opinion and Partner at Chapman Tripp

Click the images below to download the recommendations paper and the legal opinion

Kiwisaver investing in private assets - legal opinion webinar:

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.