REGULARS | INVESTMENT COMMENTARY
Are KiwiSaver managers investing members’ funds successfully? David Van Schaardenburg shares the results of his research study examining investment returns success across the KiwiSaver industry.
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year ago I completed a research study, the first of its type, which examined the success across the whole KiwiSaver industry in investment returns terms. The test was: “Are KiwiSaver fund managers achieving returns (pre-tax, after fees) for their KiwiSavers’ fund above the market return benchmarks they set for that fund?” This test aligns with the most common key fund screening criteria used by investment advisers to select funds for their clients – are fund returns exceeding their return benchmark, after manager fees? In three decades of funds management I have never seen the reason why an adviser would advocate a fund manager where there wasn’t evidence that they could beat their return benchmark. My return test is applied to all KiwiSaver funds on the same basis whether they are low fee or high fee, active or passive management styles. In doing so it avoids the debate on fee levels and the philosophy behind how KiwiSaver fund managers manage client funds. Twelve months ago, using FMAsourced data, my test was applied across the entire KiwiSaver fund industry pre-tax, after fees for the year return period to March 31, 2020. The outcomes from this initial assessment were unfortunately pretty underwhelming. A year on into the pandemic recovery, using the most recent data to March 31, 32 | ASSET 04 | 2021
BY DAVID VAN SCHAARDENBURG
2021, have KiwiSaver fund managers improved on their delivery of “better than benchmark” investment outcomes to their members?
It’s important KiwiSaver fund managers improve investment outcomes for members Most of the public debate on KiwiSaver has centred on topics like fee levels, who runs the default funds, how to access low cost advice – yet very little debate has been on investment success displayed by KiwiSaver fund managers. To date investment excellence has been promoted via relatively simple advertisements of past returns or ranking within a broad KiwiSaver fund group. However, I have yet to see any advertising of KiwiSaver “investment success” – ie our fund returns have beaten the fund’s return benchmark over the last five years by xx%. Easy to know why this hasn’t happened – it’s harder to beat your return benchmark over medium term periods than beating a selection of your peers. Such analyses become increasingly important as the industry and diversity of options for KiwiSaver investors grow as does the quantum of New Zealand household wealth that is under the management of the KiwiSaver managers. The growing importance of KiwiSaver can be seen when comparing data at March 31, 2020 to March 31, 2021.
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The number of KiwiSaver funds on offer have grown by near 20% from 255 funds to 305 funds.
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The number of funds with a five year return history has expanded from 163 to 201 funds.
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Annualised fund manager revenues have grown from $540 million to $775 million.
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Dollar-weighted average annual fees have grown from 0.85% to 0.93%.
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KiwiSaver funds under management have grown by 38% from $61 billion to $84 billion.
The latter sum I expect to grow by an average $10 to $15 billion each year over the next five years. So by 2026 the KiwiSaver industry should have around $150 billion under management. Extracting an extra 0.5% of fund performance each year through superior management of that sum would equate to another $750 million in added wealth each year into the accounts of KiwiSaver members. No small beer! Surprising to me in the above figures was the rise in weighted average fees over the last year, especially given the consumer and regulatory pressure on KiwiSaver managers to reduce their fees. It appears that much of the reason for that increase is the material rise in the proportion of KiwiSaver members
