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The pros and cons of investing in crypto

Love them or hate them, it seems cryptocurrencies are here to stay with some Kiwi investment firms embracing them, while others remain wary.

Recently, Implemented Investment Solutions (ISS) announced it is launching a new high-risk Bitcoin fund, NZ Funds say there’s a place for them in a diverse portfolio, however, Generate KiwiSaver say they’re not suitable for retirement savings.

Right now, the RBNZ is consulting on the possibility of a national digital currency and earlier this month Easy Crypto raised $17 million in capital to expand its business.

NZ Funds’ chief executive Michael Lang says having a small amount of cryptocurrency in a retirement (think KiwiSaver) or investment portfolio makes for a better risk-adjusted portfolio as it acts as an investment stabiliser.

Lang says one of the many uses of cryptocurrencies is decentralised banking that “... has the potential to provide banking services to a significant portion of the world’s population who are unbanked and, in doing so, will help relieve poverty, protect personal information, and work to prevent fraud and reduce crime”.

According to Easy Crypto co-founder Janine Grainger, the company’s capital raise of $17 million would help it expand into more overseas markets including Indonesia, the Philippines and other parts of Asia.

Jumping on board with Easy Crypto were some big names in the New Zealand investment scene – Nuance Connected Capital, Icehouse Ventures, Pathfinder Asset Management and Alvarium.

Grainger says due to industry caution about cryptocurrencies it has been difficult to find investors but raised the $17 million in just three weeks and is likely to offer an IPO to general investors in the future.

Grainger is also involved with the new ISS Bitcoin fund as a co-founder of Vault Digital Funds.

The Vault International Bitcoin Fund – being issued by Anthony Edmonds’ IIS with Vault Digital Funds as fund manager – is a New Zealand owned and operated digital assets investment manager.

Vault co-founder and chief executive Vinnie Gardiner has a vision to “... help propel New Zealand to be a world leader within the rapidly growing Fintech arena”.

But the product disclosure statement gives it the highest risk rating possible – a seven.

“This is a highly speculative investment. Bitcoin is a highly volatile asset. This means the fund will not be appropriate for all investors,” the PDS states.

The fund has a 2.5% fee and the PDS recommends a minimum suggested investment timeframe of 10 years.

Meanwhile, Generate says it’s not interested in cryptocurrencies, “... the volatility means it’s probably not suitable for an investment account that has the goal of saving for retirement,” said Generate’s fixed interest portfolio manager Ayrton Oliver.

He also says there are questions around the regulation of crypto and its high energy use.

Portfolio manager Sam Goldwater says no one has a clue where crypto will go in the years ahead as it is impossible to value.

“If you can’t value something then it is just speculation ... and speculative activities are not appropriate for retirement savings.”

Lifetime and Saturn both buy businesses

Some significant acquisitions have gone ahead recently with Lifetime buying an Auckland-based advice group; and financial planning group Saturn Advice purchasing National Capital.

Christchurch-based Lifetime Group acquired One50 Group with Lifetime managing director Peter Cave saying the deal helps Lifetime achieve several goals, including a presence in the vital Auckland market, and to become a nationwide one-stop-shop financial advice offering.

Also, One50 Group adds accounting and property accounting partnerships, general insurance and business advisory services to the Lifetime advice suite.

One50 Group managing director Greg Munt and his team will own around 10% of Lifetime once the deal is complete – Cave will continue as managing director, Munt will join the executive leadership team with the group operating under the Lifetime brand.

Saturn Advice is an Auckland-based financial planning group and has bought KiwiSaver adviser firm National Capital with Saturn’s managing director John McConnell saying KiwiSaver was the missing piece of Saturn’s investment puzzle.

Formed three years ago, National Capital provides KiwiSaver research and advice covering more than 200 funds from 13 providers – its goal is to provide KiwiSaver advice to one million New Zealanders and reach $100 million of funds under advice soon, National Capital director Clive Fernandes says.

McConnell says adding a digital advice service to the business is a challenge and financial advice has been done “... much the same way for almost forever” – that is people getting out and working with clients.

The way KiwiSaver was set up has made it hard to give advice, he says, but the National Capital model is showing advice can be given to KiwiSaver members using technology.

Duff warning

In a warning to health and life insurance advisers looking to sell off their fire and general portfolios, Warren Duff says they need to check their contracts after finding he couldn’t on-sell his client book.

Duff, who has spent more than six decades in the life insurance business, says he’s “bitterly disappointed” after learning his fire and general (F&G) clients were returned as direct customers to his three F&G providers.

Duff says he held “substantial commissions” with his insurers and they “... got very good quality business from me and I feel the industry I worked with for decades has let me down somewhat”.

“There will be a lot of commission agents writing life and doing some F&G and getting their commission so they need to be very wary of what’s in their portfolio agreements.

“I know it sounds like sour grapes, but check your agreement, take it to your lawyer,” Duff says.

Financial services consultant and director of Chatswood Consulting Russell Hutchinson says it’s not unusual for all types of insurers to stop advisers selling their books but has some sympathy for Duff’s position.

“It’s a good warning for others but this does happen in the life sphere as well as fire and general.”