KiwiSaver funds are likely to invest more money in private assets over the coming years.
Photo: RNZ / Quin Tauetau
KiwiSaver funds are likely to invest more money in private assets over the coming years, the Financial Markets Authority (FMA) says.
It has released a new report which looks at how the managed fund sector is approaching private investments.
Private investment refers to investments that are not traded on public markets.
It is something that has been discussed increasingly in recent years. Last year, Commerce and Consumer Affairs Minister Andrew Bayley said more KiwiSaver schemes investing in private assets would bring “substantial benefits” for New Zealand – although not every fund manager was convinced.
The FMA said seven managers reported investing in private assets and most held them both directly and indirectly.
“Direct investments make up the majority of investment value, with respondents disclosing over $1 billion in private assets, more than double the value of indirect investments, or third-party private assets. However, fewer respondents invest directly in private asset investments than indirect private asset investments.”
Private equity, private debt and real estate equity were the most common directly held private investments.
Real estate equity was the largest investment, in terms of value.
The FMA said where private assets were held in retail funds, they accounted for less than 5 percent of assets under management, on average.
But most KiwiSaver providers planned to increase their allocations to private assets over the next three years.
John Horner, director of markets, investors and reporting at the FMA, said the findings confirmed the global trend towards more private asset investment was likely to happen in New Zealand too.
He said it was not necessarily going to lead to higher returns but over time should be positive for investors.
“It’s going to expose them to a greater range of options when it comes to investing in assets generally.”
He said other countries had more exposure already.
“I think Australia would be the logical comparative and they’ve got a much larger pool of funds for the superannuation regime and significantly more money invested in private assets as a proportion of overall holdings. I think it’s closer to the 15 to 20 percent range.”
Horner said it would create challenges for managers because they would need systems to provide regular valuations of their investment assets for KiwiSaver members who could withdraw or move their money at any time.
“It raises different challenges to investing in public markets where you can buy and sell and see a valuation for a particular security at any particular time.”
He said while investors might not notice a lot of difference if their managers were increasing their investments in private assets, it would be good for them to take an interest in what their fund managers were investing in and how risks were being managed.
“We’d really encourage those investors to ask questions so that they get comfortable with the information that’s being provided.”
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